Insiders sold at the highs and the market ignored it

When executives sell, the top is near

Does it really help to watch what CEOs do with their own shares? The indicator that tracks buying and selling by senior executives —the so-called insiders, the ones who file a Form 4 with the SEC every time they trade stock in their own company— spiked during an up session and the reading was immediate: they used the rebound to unload shares. The gap between sales and purchases widened noticeably. The starting thesis is simple and as old as the market itself: bottoms are marked when selling falls below buying, and tops when selling runs wild.

The first objection came from the calendar. During blackout periods ahead of earnings releases, executives cannot buy or sell unless they have previously registered a prearranged trading plan. And not all companies report on the same day, so the gap does not show up cleanly on the chart. The answer from the person running the tracker was that the indicator is aggregated and the filings are reported almost immediately, so the effect is diluted across companies. The nuance matters: share buybacks a company makes with its own cash are one thing, and an executive buying shares privately is quite another.

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What the insider buying and selling data show

The tracking relies on public records of transactions by officers —CEO, CFO, CTO, COO— in their own companies. The central observation: in October selling dropped and that marked a reasonable entry zone; in November they sold heavily at a local high and the market fell afterwards. In August, with the Form 4 data from the 17th, one day after the highs, selling surged and the decline began. The pattern repeats with an unsettling persistence.

There is one detail that explains the behavior and should not be lost sight of: what they sell is, in practice, free to them. These are shares the company hands them as part of their pay or options they exercise. They maximize the timing of selling them. If they sense the business is weak, they liquidate; if they see solid prospects, they buy or hold. It is not a mystical signal: it is people with inside information about their own business managing their payroll.

The June rally and the crossover of buying and selling

In the June stretch, buying and selling actually crossed. The person running the tracker described it as a smell of something like the ELbichito episode approaching, with executives buying hand over fist. The reference is no accident: in the 2020 selloff the buy/sell ratio hit a level unseen in years and insiders took the chance to accumulate. That same level reappeared months later, when cumulative buying marked a high that has held since.

The counterpoint came quickly: in the rally off the June lows, the main forces were retail investors and, in the final sessions, short covering. Insiders do not move the market through volume; they move through what they anticipate. And their behavior between late 2021 and early 2022 was to sell hard as the market fell, then gradually accumulate as prices dropped.

The blackout that does not show on the chart

The juiciest technical discussion lies in the regulatory calendar. During April, in the previous earnings season, more than half of S&P 500 companies had insider buying and selling restricted, with the exception of pre-registered plans filed with the SEC. One executive sells exactly 342 shares every week, come what may, because she filed a plan to do so in advance. That is not a market signal: it is an automated payroll.

Hence the conclusion the tracking stands on: it is normal for activity to drop during blackouts and to spike right afterwards. The indicator is not broken; it is reading through a temporal funnel.

From August euphoria to the February correction

The mood shifted several times. In August, with the public spending package known as the inflation bill underway, the bet was an up month to the top of the JP Morgan collar around 4,600 points, trinc by a correction. The sale of calls at 4,665 was cited as a reference. By February 2023 the tone was different: insiders sold net far more than in any similar period of 2022, even with the market falling, something that does not fit the usual pattern.

The read was that something was genuinely wrong. And a single-session rally triggered a record in selling. The tracking put it in writing without mincing words: "this game is rigged," because the moves came right before a better-than-estimated inflation print was released.

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In the end, the question left hanging is the usual one: if these gentlemen are so right, why does the market keep rising when they sell? Maybe the indicator marks tops with a lag, or maybe we are all just watching someone else's payroll while gambling our own.