Market Preview: Bear Scare

NEW YORK (TheStreet) -- Was last week the beginning of the long-awaited pullback in stocks?

TrimTabs, for one, is getting more cautious. The research firm on Sunday went to cautiously bullish (50% long) on U.S. equities from fully bullish (100% long).

It cited a shrinking gap between corporate buying, which it defines as new cash takeovers and stock buyback activity, and corporate selling, which includes new share offerings and net insider selling.

Corporate buying is at $46.5 billion so far in March, TrimTabs said, just $15.2 billion higher than corporate selling of $31.3 billion, which is the narrowest gap seen since May 2011.

"The Federal Reserve has pumped out so much free money that public companies have been using balance sheet cash to buy back many more shares than the public -- including retail investors, pension funds, and hedge funds -- has been selling," the firm wrote. "Now it is share selling by companies that is ramping up."

Insider selling is up to $4.7 billion this month, and TrimTabs said that translates to an insider sell/buy ratio of 20.8, the highest since February 2011. The firm expects the trend to continue until the market buckles under the strain, and it noted next week's docket already includes plenty more selling, including some opportunistic secondaries.

"Given the lofty valuation of the overall U.S. stock market -- the S&P 500 trades at 23.2 times 10-year trailing earnings -- we expect companies and insiders to sell huge amounts of shares as long as stock prices do not crack," TrimTabs said.

The firm continued: "Eleven new offerings expected to raise a total of $2.5 billion are already scheduled to price this week, including a $650 million secondary for online gaming favorite Zynga (ZNGA). Like the proceeds of the $1.4 billion secondary for Michael Kors Holdings (KORS) that priced in the past week, the proceeds of the Zynga deal will go to top insiders and shareholders, not the company. When we start seeing these types of secondaries hitting the market, it raises a big red flag."

Last week's action presented the first real bear scare in a while for the markets with the Dow Jones Industrial Average falling 1.2%, its worst weekly performance since mid-December 2011. The blue-chip index is still up 7.1% year-to-date, but it has now fallen in three of the last four weeks.

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