Thursday, October 28, 2010

Scarriest Market Indicator Yet

Well this article on CNBC is simply terrifying. It states that insider selling in corporate america is presently rampant. The ratio of insider selling to buying is 3,177 to one, in three industrial sectors.

Apparently the article focuses on the top ten companies in the Nasdaq, retailers, and semiconductor market segments.

The contrary opinion stated in the article is essentially that this information reflects more on the cash flow problems of corporate executives as their pay and bonuses have allegedly been slashed. And ofcourse many of their real estate investments are under water so they don't want to sell them.

Could this be the precursor to a huge market correction? Could we see a P/E multiple contraction to reflect the tremendous risk perceived in holding dollar assets?

This commentator is trying to decide what to sell to have significant cash around to take advantage of a market correction.

With gold and silver this high its difficult to continue to bet on it going up. If gold hits $1500 an ounce I will likely sell off a majority of my tiny position in it. I haven't yet sat down to pontificate on what silver price would lead me to sell.

One strange anomaly of late is that the Gold and Silver ETFs seem to go down on the same day that the stock market goes down. I suppose this could be a reflection of a strengthening dollar causing less foreigners to invest in the market and also perhaps fewer people to buy precious metals as a hedge against a declining dollar. This seems counter intuitive to me. If we have a major breakdown in the market ( which I expect at some point) which would be further asset depreciation we could see a rally in the commodities ( staples inflation). Call me a pessimist but I see this worst of all worlds situation as a real possibility. Other nightmares include a Japan style endless recession and deflated asset prices that never come back.
However, the optimist in me realizes that great market fluctuations such as this create real opportunities for the smart contrarian investor willing to go against the crowd have ample cash and take advantage of a potential sale on dividends. If dividend yields go up as a consequence I plan to be on a stock shopping spree.

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