Insiders have been net sellers for some time

One of our first screens is insider buying and selling.  Although we think  from time to time we might have some perspective or glint of information correct that the maddening crowd has perceived wrong, we don’t delude ourselves into thinking that we have a better bead on what’s going on than the people running the business do.  Right now must of them have been sellers as noted in the graph below courtesy of the Washington Service. Click on it to enlarge.  The faint pink horizontal line is the normal ratio of buyers/sellers.  Anything above the line is heightened buying and below is a pick up in selling.

This year I am treating this information a little differently.  The Bush tax cuts on capital gains are sure to be either ended or amended in 2013.  What you were thinking about selling today is a lock now when faced with the prospect of paying substantially more taxes on the gains if you wait until 2013 to sell.  It’s easier to rationalize the preponderance of selling versus buying to the unusual tax year rather than a gloomy outlook.  At least that’s how I’m playing it.

I also believe next year will show pent up insider demand.  For example, what you took profits on this year, you can buy back almost immediately for many insiders (short swing rules, blackouts, and the like.)  I expect to see pent up demand once Congress settles the fiscal cliff debate and a sense of normalcy returns.  After all stocks are an incredible buy in this ultra-low interest rate environment. There are numerous headwinds of course, least of which is weak investor demand and competition from real estate investments.  At some point the housing market is going to get frothy and the Fed will most likely quietly slow down their purchases of mortgages and dampen the real estate rally.  Stock will only be slowed down by a real and significant rise in interest rates or a collapse in economic activity.  Neither of which are on the immediate horizon.