Corporate Insiders Selling… Retail Investors Buying

From Bloomberg:

Corporate executives are taking advantage of near-record U.S. stock prices by selling shares in their companies at the fastest pace in two years.

There were about 12 stock-sale announcements over the past three months for every purchase by insiders at Standard & Poor’s 500 Index (SPX) companies, the highest ratio since January 2011, according to data compiled by Bloomberg and Pavilion Global Markets. Whenever the ratio exceeded 11 in the past, the benchmark index declined 5.9 percent on average in the next six months, according to Pavilion, a Montreal-based trading firm.

Confidence in equities from individual investors may soften the blow from insider sales this time, according to Pavilion’s Pierre Lapointe, head of global strategy and research.

The ratio of sales versus purchases by chief executives, directors and senior officers at S&P 500 companies is more than twice the average ratio of 5.4 over the past 10 years, according to data compiled by Bloomberg and Pavilion. In the months after the ratio was last at this level, the benchmark index retreated as much as 19 percent from April to October of 2011.

Executives at 153 companies in the S&P 500 unloaded shares between Feb. 11 and Feb. 15, with announcements of sales outnumbering buys by 17 to 1. The top sale that week was made by Google Chief Executive Officer Larry Page, 39, with a divestment worth more than $65 million.

Still, Lapointe wrote, “insider transactions do not move markets, large inflows do” and stocks should be supported over the short term by individual investors pumping money into equities.

Investors deposited $37 billion into equity funds in January, the most since 2004, after pulling almost $300 billion out of stock funds since the market bottomed, estimates from the Washington-based Investment Company Institute show.