Even the slump in stock prices at the end of September wasn't enough to entice corporate insiders to buy their own companies' shares, suggesting a lack of confidence that may bode badly for the stock market as a whole, new data show.
The lack of buying, coupled with continued high-volume selling by company officers, directors and large shareholders, left insider sentiment for the full third quarter at the most bearish level in at least a decade, the research firm Thomson Financial said Monday.
Insiders, in open-market transactions during July, August and September, unloaded $36 of company stock for every $1 they bought.
The raw quarterly totals were $239 million in open-market purchases, the lowest since the fourth quarter of 1994. By comparison, insiders sold $8.7 billion of shares, the most since the second quarter of 2001, according to the Thomson report.
Some analysts consider insider transactions an important indicator of market direction, on the theory that insiders know better than anyone else the prospects for their own firms. Open-market purchases are tracked -- excluding shares acquired via options -- to gauge whether insiders view their stocks as bargains at market prices.
The quarter closed with a whimper as insiders bought $77 million worth of stock in September, 10% less than in August. That was despite declines of 4.2% in the Standard & Poor's 500-stock index and 6.4% in the Nasdaq composite index in the month's last eight trading days.
September's insider sales of $2.8 billion weren't as heavy as the $3.5 billion logged a month earlier, but the sell-to-buy ratio of $36 to $1 marked the fifth straight month above $20 for that indicator.
Historically, a ratio of $20 or above marks bearish territory for the stock market, Thomson said. (Insider sales nearly always exceed purchases because the former include sales of stock acquired via options awards.)
October typically sees higher insider selling than September, but no discernible trend has emerged, according to Thomson.