INSIDERS ARE SELLING--BUT THE BIG QUESTION IS WHY
Are insiders losing confidence in the stock market? Last week, the Vickers Weekly Insider Report noted that its average eight-week ratio of sales to purchases of stock by corporate insiders had jumped to 3.29, and in the latest reporting week the sell-buy ratio has risen again, to 3.81 (page 133). Since any ratio above 2.25 suggests that the market is headed for a decline, the latest numbers are hardly reassuring. "We have been recording an unsettling loss of enthusiasm among insiders for shares of their own companies for some weeks now," says David Coleman, who tallies the ratio.
The catch, of course, is that the ratio in recent weeks mainly has been reflecting insider behavior in December. Thus, there's a possibility that the surge in sales is a result of insider attempts to realize income in 1992 and avoid a likely rise in marginal income tax rates this year. But Coleman argues that executives anticipating healthy capital gains in their holdings would be unlikely to sell to avoid a five-percentage-point rise in their tax bite. "We're not convinced this is simply tax avoidance," he says.
The moment of truth will come next month. Since all January insider trades must be filed with the Securities & Exchange Commission by Feb. 10, Coleman expects his sell-buy ratio to start reflecting January trades by mid-February. "If the ratio is still significantly above 2.25 by the end of the month," he says, "investors should be wary." GENE KORETZ