Where the Selloff Isn't Over
This column was originally published on RealMoney on June 1 at 1:30 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
It is an absolutely awful sign about a company if, after the recent broad selloff, insiders are still selling shares. At best, it indicates a lack of faith that the stock will recover soon. At worst, it could be a sign that executives are afraid that they had better get out now before shares fall even more. These are stocks that I'd suggest investors forget about bottom-feeding on. A little leg work could even uncover a decent short-selling opportunity.
Unlike the recent
Shares of United Therapeutics (UTHR) started to slump before the market selloff after accounting changes reduced first-quarter profits. The technical condition of the stock has been steadily breaking down since. After a four-year run that took shares from $10 to nearly $80, United Therapeutics' 50-day moving average recently crossed below its 200-day average.The heavy insider selling over the past few years -- particularly option-related selling -- was unremarkable, given its strong performance. But the fact that insiders have continued to sell with their stock now 35% below its recent highs tells me that they don't believe new highs will be seen any time soon. Shares of Onyx Pharmaceuticals (ONXX) also are off by nearly a third over the past three months, but that hasn't dampened the enthusiasm of executives to flip their options for a risk-free profit. Even recent upgrades of Onyx by Wachovia and Prudential don't appear to have halted the slide. Corporate spokesmen sometimes argue that options-related selling isn't really meaningful. Don't fall for that line. If executives really thought it likely that their shares were going to rebound from the depths, they would postpone the exercise. Options do not stymie an executive's free will.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV