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As stocks rebound, corporate insiders ramp up selling

April 27, 2009 |  6:30 am

Wall Street's surge since March 9 also has trigged a surge of personal stock sales by corporate insiders.

From Bloomberg News:

Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.

While the Standard & Poor's 500 index climbed 28% from a 12-year low on March 9, CEOs, directors and senior officers at U.S. companies sold $353 million of equities this month, or 8.3 times more than they bought, data compiled by Washington Service, a Bethesda, Md.-based research firm, show.

That’s a warning sign because insiders usually have more information about their companies’ prospects than anyone else, according to William Stone, chief investment strategist at PNC Financial Services Group Inc. in Philadelphia.

“They should know more than outsiders would, so you could take it as a signal that there is something wrong if they’re selling,” said Stone. “Whether it’s a sustainable [market]rebound is still in question. I’d prefer they were buying.”

That's the key point here: You'd expect insiders to know their own companies, but that doesn't necessarily mean they have any better insight into the stock market's trend than the rest of us. Still, you'd rather not see them unloading shares at this pace; it suggests an urgency to cash in.

Bloomberg data show the selling rate is the heaviest since October 2007, the month the bull market peaked.

Open-market purchases by insiders, meanwhile, totaled just $42.5 million this month through April 20, according to Washington Service. If the total doesn't rise significantly before the month is out it could mark the smallest total for purchases since July 1992, according to Bloomberg.

Insider stock sales usually exceed open-market purchases because many insiders acquire stock by exercising options rather than via open-market trades. But a sales-to-purchases ratio of 8.3 is high by any measure.

-- Tom Petruno