Michael Lombardi, lead contributor to popular financial newsletter Profit Confidential, has performed research showing that stock selling by corporate insiders has continued to rise, as the stock market rally continued. He believes this is extremely important as a warning sign, because insiders have a deep understanding of their company, market, and earnings outlook.
In the article, Another Key Stock Market Indicator Flashes Red
, Lombardi makes the point that, when corporate insiders are buying stock in the companies they work for, this is a key indicator for investors to buy, as it may indicate that the company’s earnings outlook is improving. “When insiders are selling, it could be a key indicator something is up, and so investors often consider selling,” says Lombardi.
Lombardi notes that the corporate insider sell-to-buy results for March showed that the ratio was 5.77-to-1, which means that, for every 100 shares insiders bought, 577 shares were sold by insiders. “In April, this key indicator deteriorated further to 6.56-to-1,” says Lombardi.
“The last time this key indicator had this high a reading was May 2011, which coincided with the last market top,” says Lombardi.
After two months of consistent and increasing corporate insider selling, a correction at the very least usually ensues, according to Lombardi.
“Corporations have been warning about their 2012 earnings outlook, as evidenced by the fact that corporate earnings growth has been slowing due to the global economic slowdown,” says Lombardi.
Lombardi believes that this is not a good sign on what has been historically a reliable key indicator
Profit Confidential, which has been published for over a decade now, has been widely recognized as predicting five major economic events over the past 10 years. In 2002, Profit Confidential started advising its readers to buy gold-related investments when gold traded under $300 an ounce. In 2006, it “begged” its readers to get out of the housing market...before it plunged.
Profit Confidential was among the first (back in late 2006) to predict that the U.S. economy would be in a recession by late 2007. The daily e-letter correctly predicted the crash in the stock market of 2008 and early 2009. And Profit Confidential turned bullish on stocks in March of 2009 and rode the bear market rally from a Dow Jones Industrial Average of 6,440 on March 9, 2009, to 12,876 on May 2, 2011, a gain of 99%.
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Profit Confidential is Lombardi Publishing Corporation’s free daily investment e-letter. Written by financial gurus with over 100 years of combined investing experience, Profit Confidential analyzes and comments on the actions of the stock market, precious metals, interest rates, real estate, and the economy. Lombardi Publishing Corporation, founded in 1986, now with over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more on Lombardi, and to get the popular Profit Confidential e-letter sent to you daily, visit www.profitconfidential.com.
Michael Lombardi, MBA, the lead Profit Confidential editorial contributor, has just released his most recent update of Critical Warning Number Six, a breakthrough video with Lombardi’s current predictions for the U.S. economy, stock market, U.S. dollar, euro, interest rates and inflation. To see the video, visit http://www.profitconfidential.com/critical-warning-number-six.