Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

[Jim Nickerson]

Notice that the title for this thread is not like so many of the bullshit titles that seem to increasingly appear on new threads here at iTulip. This title actually is descriptive of the subject of the thread.

http://news.prnewswire.com/DisplayRe...05084471&EDATE=

Insider Selling in August Soars to 30.6 Times Insider Buying, Highest Level Since TrimTabs Began Tracking in 2004. NYSE Short Interest Plunges 10.3%, While Margin Debt Spikes 5.9%

SAUSALITO, Calif., Aug. 28 /PRNewswire/ -- TrimTabs Investment Research reported that selling by corporate insiders in August has surged to $6.1 billion, the highest amount since May 2008. The ratio of insider selling to insider buying hit 30.6, the highest level since TrimTabs began tracking the data in 2004. "The best-informed market participants are sending a clear signal that the party on Wall Street is going to end soon," said Charles Biderman, CEO of TrimTabs. TrimTabs' data on insider transactions is based on daily filings of Form 4, which corporate officers, directors, and major holders are required to file with the Securities and Exchange Commission. In a research note, TrimTabs explained that insider activity is not the only sign the rally is about to end. The TrimTabs Demand Index, which tracks 18 fund flow and sentiment indicators, has turned very bearish for the first time since March. For example, short interest on NYSE stocks plummeted by 10.3% in the second half of July and margin debt on all US listed stocks spiked 5.9% in July, while 51.6% of advisors surveyed by Investors Intelligence are bullish, the highest level since December 2007. "When corporate insiders are bailing, the shorts are covering and investors are borrowing to buy, it generally pays to be a seller rather than a buyer of stock," said Biderman. TrimTabs also reports that the actions of U.S. public companies have been bearish. In the past four months, companies have been net sellers of a record $105.2 billion in shares. "Investors who think the U.S. economy is recovering are going to get a big shock this fall," said Biderman. "Companies and corporate insiders are signaling that the economy is in much worse shape than conventional wisdom believes."

[Starving Steve]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

As a timid bull in stoxx, especially oil stocks, we need a "wall of worry" for the market to go higher. I welcome all of the nervousness and notes to clients.

Many things will conspire to drive the markets higher in the long-run: 1.) the wall of worry; 2.) Bernanke and the stupidity in/out of the Fed to follow him; 3.) the competitive de-valuation of world currencies, especially the dollar; 4.) the shorts in the markets, especially the oil market; 5.) the fundamental shortage of cheap oil; 6.) the stupidity of American energy policy (windmills and solar); 7.) zero interest rates, and the unwillingness of Bernanke to seriously raise interest rates "for an extended period of time"; 8.) the budget deficits, spending, the Red Sea of red ink, and the stupidity of economists who encouraged this state-of-affairs; 9.) all boats rise in a rising tide of cheap money; 10.) stocks pay dividends and banks pay nothing; 11.) trends come and go, but the fundamentals remain bullish in most markets, especially energy stocks; 12.) bull markets never let late-comers (day-traders) buy-in cheap; 13.) if the American stock market goes to hell, everything in America will go to hell.

[goadam1]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

As a timid bull in stoxx, especially oil stocks, we need a "wall of worry" for the market to go higher. I welcome all of the nervousness and notes to clients.

Many things will conspire to drive the markets higher in the long-run: 1.) the wall of worry; 2.) Bernanke and the stupidity in/out of the Fed to follow him; 3.) the competitive de-valuation of world currencies, especially the dollar; 4.) the shorts in the markets, especially the oil market; 5.) the fundamental shortage of cheap oil; 6.) the stupidity of American energy policy (windmills and solar); 7.) zero interest rates, and the unwillingness of Bernanke to seriously raise interest rates "for an extended period of time"; 8.) the budget deficits, spending, the Red Sea of red ink, and the stupidity of economists who encouraged this state-of-affairs; 9.) all boats rise in a rising tide of cheap money; 10.) stocks pay dividends and banks pay nothing; 11.) trends come and go, but the fundamentals remain bullish in most markets, especially energy stocks; 12.) bull markets never let late-comers (day-traders) buy-in cheap; 13.) if the American stock market goes to hell, everything in America will go to hell.

Harumph. Every third thought contradicts every second thought. Just as I see it.

[Starving Steve]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

In the long-run, Bernanke will destroy the stock market by destroying the confidence in the U.S. dollar. But in the next year or at least the next six months, I see an upward bias in nearly all markets. And this is exactly what the Federal Reserve wants: an inflationary under-tow in the markets.

Bernanke is a good friend to have in the stock market. [Sic,] "All aboard?" The wind in the direction of inflation is blowing hard from the Fed--- and all of the world's central banks at the same time, in unison. Let's dig the debt-hole deeper. (Back to bubble economics.)

Only some sort of Black Swan event could kill the stock market sooner. Those Black Swan events are, fortunately, very seldom seen: one or two in a life-time.

[santafe2]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

Notice that the title for this thread is not like so many of the bullshit titles that seem to increasingly appear on new threads here at iTulip. This title actually is descriptive of the subject of the thread.

I doubt Mega will notice the opposing blip in trend. He's hard core.

To add an on topic comment - I hate how many obvious negative indicators there are now. I'm still waiting until September but I'll start shorting before Q4. The economy is unfortunately nothing short of a mid-90s reminder of where we were with a lot of extra people creating the output.

[Raz]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

Here's another reason to abandon the long side of stocks.



Doug Kass sees market low "in the next two or three days"

March 3, 2009 11:54 AM EST



Appearing on CNBC's The Kudlow Report last night, notorious short seller-turned-bullish, Doug Kass, pounded the table on the recent declines, emphatically calling a bottom.

Kass, who admits that he has been criticizing bottom-feeders for the last 3 years, said that he wants to "go on the record" saying that "we will make a yearly low in the S&P within the next 2 or 3 days." That's getting pretty specific...



What he says now:

Kass: Market Has Likely Topped

Doug Kass

08/26/09 - 01:11 PM EDT


Back in early March, there were signs of a second derivative U.S. economic recovery, the PMI in China had recorded two consecutive months of advances, domestic retail sales had stabilized, housing affordability was hitting multi-decade highs (with the cost of home ownership vs. renting returning back to 2000 levels), valuations were stretched to the downside and sentiment was negative to the extreme. These factors were ignored, however, and the S&P 500 sank to below 700.

To most investors, back in early March, the fear of being out was eclipsed by the fear of being in. Despite the developing less worse factors listed above, bulls were scarce to nonexistent in the face of persistent erosion in equity and credit prices.
It was at this point in time, on RealMoney Silver, in an appearance on CNBC's "Fast Money," on "Mad Money" and in multiple appearances on "The Kudlow Report," I confidently forecast the likelihood that a generational low had been reached.
I went on to audaciously predict that the S&P would rise to 1,050, a gain of nearly 400 points from the S&P low of 666 during the first week of March, by late summer/early fall. I even sketched a precision-like SPDRs (SPY Quote) expectation chart that would reach approximately the 105 level (a 1,050 S&P equivalent) within about six months.

Yesterday the SPDRs peaked at 104.20, within spitting range of my intrepid March forecast of 105, and the S&P nearly touched 1040 in Tuesday's early morning trading.
Arguably, today investors face the polar opposite of conditions that existed only a few months ago, with economic optimism, improving valuations and positive sentiment. To most investors, today the fear of being in has now been eclipsed by the fear of being out as the animal spirits are in full force. Bears are now scarce to nonexistent in the face of steady price gains in equity and credit prices.


As if the movie is now being shown in reverse, the bull is persistent, stock corrections are remarkably shallow, cash reserves at mutual funds have been depleted, and hedge funds hold their highest net long positions in many moons.
Stated simply, in the current bull market in complacency, optimism and a boisterous enthusiasm reigns.

As I have written on these pages, the investment debate has morphed in a dramatic fashion from concerns as to whether U.S. economy was entering The Great Depression II to whether the current domestic recovery will be self-sustaining.
The primary question to be asked is, Will the earnings cycle dominate the investment landscape and cause investors to overlook the chronic and secular challenges facing the world's economies, particularly as the public sector stimulus is eventually withdrawn and paid for and the economic consequences of the massive public sector intervention manifest themselves in the form of higher interest rates and marginal tax rates?

Most now have accepted the notion that due to the replenishment of historically low inventories, extraordinary fiscal/monetary stimulation and the productivity gains from draconian corporate cost-cutting, the earnings cycle is so strong that it will trump the consequences of policy. More accurately, most believe that they can get out of the market before the full effects of policy are felt.

I am less confident as a decade of hocus-pocus borrowing and lending and 35-to-1 leverage at almost every level in both private and public sectors cannot likely be relieved in the great debt unwind over the course of only12 months.

It is important to emphasize that when I made my variant March call, I expected many of the conditions that now exist -- namely, a resurgence of economic and investment optimism during the summer to be followed by a multiyear period of weak investment returns. Specifically, I expected a mini production boom and an asset allocation away from bonds and into stocks to be embraced and heralded by investors, who would only be disappointed again in the fall as it becomes clear that a self-sustaining economic recovery is unlikely to develop.




My view remains that it is different this time. Again (now for emphasis), the typical self-sustaining economic recovery of the past will not be repeated in the immediate future for 10 important reasons that will weigh on the economy and markets like the governor that controlled the speed of the Good Humor truck I drove when I was in my teens during the summer:

1. Cost cuts are a corporate lifeline and so is fiscal stimulus, but both have a defined and limited life.
2. Cost cuts (exacerbated by wage deflation) pose an enduring threat to the consumer, which is still the most significant contributor to domestic growth.
3. The consumer entered the current downcycle exposed and levered to the hilt, and net worths have been damaged and will need to be repaired through higher savings and lower consumption.
4. The credit aftershock will continue to haunt the economy.
5. The effect of the Fed's monetarist experiment and its impact on investing and spending still remain uncertain.
6. While the housing market has stabilized, its recovery will be muted, and there are few growth drivers to replace the important role taken by the real estate markets in the prior upturn.
7. Commercial real estate has only begun to enter a cyclical downturn.
8. While the public works component of public policy is a stimulant, the impact might be more muted than is generally recognized. There may be less than meets the eye as most of the current fiscal policy initiatives represent transfer payments that have a negative multiplier and create work disincentives.
9. Municipalities have historically provided economic stability -- no more.
10. Federal, state and local taxes will be rising as the deficit must eventually be funded, and high-tax health and energy bills also loom.

Just as I looked over the valley in March 2009 toward the positive effects of massive monetary/fiscal stimulation within the framework of a downside overshoot in valuations and remarkably negative sentiment, I now suggest another contrarian view is appropriate as I look over the visible green shoots of recovery toward a hostile assault of nonconventional factors that few business/credit cycles and even fewer investors have ever witnessed.


Yesterday, the OMB/CBO provided an exclamation point to the secular challenges that the domestic economy faces in forecasting an accumulated deficit of $9 trillion over the next decade (up $2 trillion from the previous forecast just two months ago), and public debt as a percentage of GDP is projected at an alarming 68% by 2019 (as compared to 54% today and only 33% in 2001). Thus far, the drop in the U.S. dollar (influenced, in part, by the mushrooming deficit) has been viewed favorably by the markets, but we must now be alert to a downside probe that becomes a threatening market factor. In other words, what has been viewed positively could shortly become negatively viewed.

A double-dip outcome in 2010 represents my baseline expectation. When the stimulus provided by the public sector is finally abandoned, it seems unlikely to be replaced by meaningful strength or participation by any specific component of the private sector, and the burgeoning deficit (described above) will ultimately require a reversal of policy, leading to higher interest rates, rising marginal tax rates and a lower U.S. dollar. My forecast assumes that the market's focus will shortly shift from the productivity gains that have been yielding better-than-expected bottom-line results toward these chronic and secular worries.

Even more important, my forecast of a 2010 market peak reflects that the aforementioned nontraditional influences (and the untoward policy ramifications) will, at the very least, yield a broad set of uncertain economic outcomes that (in consequence and in probability) tilt away from a self-sustaining economic scenario sometime in the following 12 months.

Stocks bottom during times of fear. With the benefit of hindsight, the March 2009 lows represented a dramatic overshoot to the downside.
Markets top during times of enthusiasm. I believe that the markets are now overshooting to the upside and that the U.S. stock market has likely peaked for the year.

Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.

[Jim Nickerson]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

I doubt Mega will notice the opposing blip in trend. He's hard core.

To add an on topic comment - I hate how many obvious negative indicators there are now. I'm still waiting until September but I'll start shorting before Q4. The economy is unfortunately nothing short of a mid-90s reminder of where we were with a lot of extra people creating the output.

Do you care to expand on "obvious negative indicators?"

I don't understand your final statement either. I don't know what the economy was like in the mid-90's but from the end of '95 it was up, up and away in the stock market.

[Jim Nickerson]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

So far, no reply from SantyFay2 regarding his remarks above. Unfortunate perhaps.

Here is some expansion on the market top calls, some of which is repetitive.

http://www.nytimes.com/2009/08/31/bu...shin&st=Search 8/30/09

Analysts say that financial stocks are looking even frothier as trading in a handful of big banks has come to dominate the action on Wall Street. The KBW Bank Index, which tracks two dozen national and regional lenders, has surged more than 150 percent since early March.

Shares of the troubled insurance giant American International Group have quadrupled. And Citigroup, Bank of America and Wells Fargo, while still down sharply from their record highs, have been some of the rally’s biggest winners.

For months, the cautious and pessimistic voices on Wall Street kept saying the rally would end as investors realized the extent of problems facing the economy — that the financial system was still on life support, companies were struggling to generate new revenue, and nearly 15 million people in the United States were unemployed. But the markets defied their warnings and chugged higher.

The investors now waiting for Wall Street to lose its footing see a big “sell!” sign flashing in the confidence that has accompanied the gains.
Just before stocks turned around in early March, only 2 percent of investors were optimistic, according to the Daily Sentiment Index, which measures the mood of small traders and is run by Jake Bernstein, an independent market analyst. Now, the index shows that about 89 percent are feeling bullish. Investors were equally cheery when the Dow hit its record high in October 2007.

Robert Prechter, president of Elliott Wave International, a technical analysis firm in Gainesville, Ga., cut his negative outlook on stocks in late February. “Now,” he wrote in an e-mail message, “we are firmly back on the bear side.” Investors might be embracing greed once again, but Mr. Prechter said he doubted the stock indexes could replicate the remarkable gains of the past five months.

Others see signs of trouble in volatile market swings in China, in the American commercial real estate sector, or in just the sheer amount of time that has passed without a major drop in stocks.

“I think everyone’s pretty bearish,” said Thomas J. Lee, the chief United States equity strategist at JPMorgan Chase. “People I talk to think there’s a 10 percent correction coming.”

Jeremy Grantham, chairman of the investment firm GMO, was another investor who began encouraging others to buy during Wall Street’s darkest days. But when the S.& P. 500 rose above 1,000 this summer, his firm started taking money off the table.

“We said that’s enough above fair value that you want to do something,” said Ben Inker, GMO’s director of asset allocation. “And we made a move.”
So far, it is just a small one. The firm cut its equity holdings by about two percentage points, to 63 percent, which is still up substantially from last year, and it is focusing on “big stable blue chips.”

The hedge fund manager Doug Kass, who declared in March that stocks had skidded to a “generational bottom,” said last week the rally had run its course.

Like other investors who expect the markets to falter, Mr. Kass said he believed the economy was not heading toward a quick or easy recovery. Companies have made themselves look profitable by slashing costs, but he said they are not going to rake in more money in the months ahead as long as weakened consumers stay in hiding.

“I think we’ve seen the high for the year,” he said. “There’s a time to hold ’em and a time to fold ’em. And I think we’re at that point.”

[Quincy K]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

As a timid bull in stoxx, especially oil stocks, we need a "wall of worry" for the market to go higher. I welcome all of the nervousness and notes to clients.

Many things will conspire to drive the markets higher in the long-run: 1.) the wall of worry; 2.) Bernanke and the stupidity in/out of the Fed to follow him; 3.) the competitive de-valuation of world currencies, especially the dollar; 4.) the shorts in the markets, especially the oil market; 5.) the fundamental shortage of cheap oil; 6.) the stupidity of American energy policy (windmills and solar); 7.) zero interest rates, and the unwillingness of Bernanke to seriously raise interest rates "for an extended period of time"; 8.) the budget deficits, spending, the Red Sea of red ink, and the stupidity of economists who encouraged this state-of-affairs; 9.) all boats rise in a rising tide of cheap money; 10.) stocks pay dividends and banks pay nothing; 11.) trends come and go, but the fundamentals remain bullish in most markets, especially energy stocks; 12.) bull markets never let late-comers (day-traders) buy-in cheap; 13.) if the American stock market goes to hell, everything in America will go to hell.

I do not believe that our current System can handle a 5k DOW, 1995 house prices and 20 percent U-6 UE.

Everything in America will go to hell.

[touchring]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

So far, no reply from SantyFay2 regarding his remarks above. Unfortunate perhaps.

Here is some expansion on the market top calls, some of which is repetitive.

http://www.nytimes.com/2009/08/31/bu...shin&st=Search 8/30/09

How about John Paulson's recent buying spree?

http://www.telegraph.co.uk/finance/n...oup-stake.html

Sources close to the American financier is thought to have invested as much as $1.15bn in recent weeks in the Wall Street banking giant which was brought to its knees during the financial crisis.

Two weeks ago it emerged that Paulson & Co had invested $2.2bn in beleaguered Bank of America (BoA).

[icm63]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

Looks like BAC ( and other banks) have a wedgy problem...
BAC001.jpg

[santafe2]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

So far, no reply from SantyFay2 regarding his remarks above. Unfortunate perhaps.

Sorry Jim, I'm just very time challenged these days. You're right, my "obvious negative indicators" statement was awfully vague. I was simply pointing to the economy which is functioning at a level not seen in 10 years. Add expanding unemployment, real estate losses, massive public debt increases and consumers unwillingness to restart their spending and you have a witches brew of bad economic indicators. It also appears that the ECRI weekly indicator is topping at 124. We'll have to wait to see where we go from here but the markets look ripe for a big down leg.

Good luck with your investing.

[Starving Steve]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

Anyone who thinks market logic and common sense is going to prevail over the dictates of the Federal Reserve Bank and the other world's central banks, is going to learn a good lesson in the next year or two.

When I was a small child, my uncle, a bankrupt dreamer and a big believer in Keynsian economics, would argue with my business-minded, fiscally conservative grandfather. And after the argument, my uncle ( the optimist ) would pull-out his cheque-book and write a cheque to my grandfather for $100,000--- a fortune in the early 1950s.

My grandfather would ask, "This is not $100,000; this is a joke. How would I be able to cash this cheque for $100,000? You are bankrupt."

Then my uncle would reply: "This cheque is good because I say it's good."

"And who are you to say your cheque is good when the cheque is obviously worthless?" my grandfather would reply, in disgust.

And then came the answer from my uncle: "I am the Federal Reserve Bank of the United States of America. I am the government."

My uncle would then pull-out a five dollar bill from his wallet and ask my grandfather,
"Would you question this piece of paper is worth five dollars, too?"

This argument would rage every Sunday afternoon in those years of my childhood, especially when my uncle had another business failure to worry about. It was hilarious!

The lesson was--- and still is now--- that Keynsian economics will work, over the short-run. So government dictates will prevail over all economic logic and common sense, come hell or high-water.... If the Fed wants the stock market to go higher, it will go higher.

[jpatter666]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

Anyone who thinks market logic and common sense is going to prevail over the dictates of the Federal Reserve Bank and the other world's central banks, is going to learn a good lesson in the next year or two.

When I was a small child, my uncle, a bankrupt dreamer and a big believer in Keynsian economics, would argue with my business-minded, fiscally conservative grandfather. And after the argument, my uncle ( the optimist ) would pull-out his cheque-book and write a cheque to my grandfather for $100,000--- a fortune in the early 1950s.

My grandfather would ask, "This is not $100,000; this is a joke. How would I be able to cash this cheque for $100,000? You are bankrupt."

Then my uncle would reply: "This cheque is good because I say it's good."

"And who are you to say your cheque is good when the cheque is obviously worthless?" my grandfather would reply, in disgust.

And then came the answer from my uncle: "I am the Federal Reserve Bank of the United States of America. I am the government."

This argument would rage every Sunday afternoon in those years of my childhood, especially when my uncle had another business failure to worry about. It was hilarious!

The lesson was--- and still is now--- that Keynsian economics will work, over the short-run. So quantitative-easing will prevail over all logic and common sense, come hell or high-water.

Quite possible. I think this is why EJ used the analogy of a bouncing ball. I can quite easily see a market panic (you see tons of people posting just *waiting* for it, and the GS HAL 9000s can goose things down just as fast (or faster) than up) and then the government pumps more money in, everyone piles back in (hey, worked last time!)

Wash, rinse, repeat.

[metalman]

Re: Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top

Quite possible. I think this is why EJ used the analogy of a bouncing ball. I can quite easily see a market panic (you see tons of people posting just *waiting* for it, and the GS HAL 9000s can goose things down just as fast (or faster) than up) and then the government pumps more money in, everyone piles back in (hey, worked last time!)

Wash, rinse, repeat.

A perfectly executed pump and dump of 401k holders starting with a $100,000 S&P stock index position December 2007 might go like this:

• Pump: $100,000 Dec. 2007
• Dump: $50,000 (-50%) Jan. 2008 - Mar. 2009
• Pump: $75,000 (+50%) Mar. 2009 - Aug. 2009
• Dump: $37,500 (-50%) Sept. 2009 - Jan. 2010
• Pump: $43,125 (+50%) Feb. 2010 - Nov. 2010
• Dump: $21,562 (-50%) Dec. 2010 - Nov 2012

At the end of it, who has 80% of the original $100,000?

answer to 'why do you expect a sell off to 500 - 600 s&p befoe year's end?'

that was a bet the farm call aug. 17. we shall see.