The Bear Essentials: Insiders Are Selling at Retail, Service Firms

A rash of insider selling may signal where these front-liners think the economy's headed.
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Where's the economy headed? There's the

Federal Reserve's

view, as voiced by

Alan Greenspan

to

Congress

, that the economy may be growing too fast, threatening the return of inflation. Then there's the view expressed by corporate insiders, who appear to be saying something altogether different.

Insiders at retail and consumer-related firm have turned notably bearish. This is no anomalous data blip. To the contrary, the insider selling that first surfaced a few weeks back among restaurant stocks has since spread across the broad retail/service sector.

In recent data, we've seen evidence of insider selling in, among other groups, computer and electronics retailers (

Circuit City

(CC) - Get Report

,

Best Buy

(BBY) - Get Report

,

CompUSA

(CPU)

), apparel and specialty stores (

Urban Outfitters

(URBN) - Get Report

,

Wilsons

(WLSN)

,

American Eagle Outfitters

(AEOS)

) and general retailers (

Dollar General

(DG) - Get Report

,

Kmart

(KM)

,

May Department Stores

(MAY)

). And that's just to name a few.

Whom would we listen to? While the financial markets lead the general economy, insiders typically lead the markets. This is all the more true for retail insiders, many of whom, after all, walk the floors at the point of sale. They have constant exposure to the consumer, and their survival depends on their keeping a finger on the pulse of the economy.

Why, then, would retail insiders be turning cautious just as the consumer economy seems poised to launch into overdrive? Remember, most agree that the Fed's goal is to hold off inflation -- in other words, to strike

before

the menace takes hold in the economy. At such a juncture, one would certainly expect at least a few more quarters of robust consumer spending.

So why all the retail and service insider selling? One explanation is that, at the very source, retail insiders are sensing something different. Could it be that they've already detected the beginnings of an ebb in consumer exuberance? Though it may seem difficult to believe, there's no denying that the sentiment shift among the group is very real. Over the years, we have learned not to fight the data.

To be sure, many stocks in these sectors have had very nice runs. And sooner or later, we would expect investors to take some profits. On the other hand, not all of these issues are trading at their highs, leading us to believe that there's something more at work here than mere profit-taking.

As always, insiders offer just a piece of the puzzle. But two things are certain. Retailing insiders won't necessarily wait for the numbers to come in before making their purchase-and-sale decisions. And insiders, who pay more attention to the fortunes of their own companies than those of the overall stock market, wouldn't likely sell if they saw evidence of

accelerating

consumer demand.

Bob Gabele has been tracking and analyzing insider trading since 1978, most recently for First Call/Thomson Financial. This column is not meant as investment advice; it is instead meant to provide insight into the methods of insider trading. At time of publication, Gabele held no position in any of the companies discussed in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gabele appreciates your feedback at

rgabele@thestreet.com.