If insider behavior is any guide, investors might be well-advised to take a cautious approach to stocks now. In the past month or so, corporate chiefs have pretty much had a hands-off approach to equities, waiting to see what will happen before making any drastic moves. Although the proportion of selling to buying has increased, insider trading activity as a whole has been reduced to a trickle on both sides. Analysts say this shows executives are unsure about where stocks are going. "Insiders are just not seeing any catalysts that the market will continue to recover. They are hesitant to commit to any strategy," said Kevin Schwenger, insider research analyst at Thomson Financial. In April, ahead of the latest upturn in stocks, insider selling was up 40% at $1.4 billion, but still at half of its five-year average. Buying fell 40% to $70 million, or one-third of its five-year monthly average of $182 million, according to Thomson Financial. As the markets entered May on a high note, selling began to pick up more momentum in a few sectors, as noted by Michael Painchaud, director of research and principal of Market Profile Theorems. "The peak has happened and now insiders are selling into it," he said.
Painchaud is referring specifically to sectors such as homebuilding, which had a run-up going into May and a healthy performance so far this year. "Wall Street has latched onto it," he says, "but insiders are not believing. They are selling." One example is Beazer Homes ( BZH), whose top executives sold a total of 82,655 shares on May 5, with the largest sales coming from Chairman Brian C. Beazer and CFO David S. Weiss. The total sale is equivalent to almost 10% of all the shares of the company held by insiders.