Last week, I focused on some noteworthy energy stocks with recent heavy insider buying. But as the Dow flirts with the 13,000 level, and the Nasdaq reaches levels not seen since the end of 2000, the ratio of insider selling to insider buying has been increasing rapidly in recent weeks, leading to red flags across various market sectors.
The insider sell-to-buy ratio is calculated by dividing the total insider sales by the total insider purchases in a single week. The adjusted ratio for last week increased to 33.3, from 20.8 the week before. So that that company insiders were selling 33 times as many shares as they were buying!
Today, I am going to identify three tech stocks with a significant recent increase of insider sales. These are not some little-known biotech or startup companies. These are three of the largest tech companies in America.
The first of these stocks is International Business Machines (NYSE:IBM). Within the past two weeks, the following insider sales have taken place:
- Jon C. Iwata, a senior vice president, sold 21,451 shares between $198.77 and $198.92, for a total of $4.3 million.
- Timothy S. Shaughnessy, another senior VP, sold 20,562 shares at $193.60, generating over $3.9 million from the sale.
- Officer Samuel Palmisano sold 250,000 shares at prices between $191.21 to $191.90, and garnered more than $48 million.
- Director Kenneth I. Chenault sold 4,000 shares at $192.50, collecting $770,012 from the sale.
- In addition, several insiders have been exercising highly profitable stock options within that same time frame.
Click to Enlarge Looking at the chart of IBM, the stock appears to be quite overextended from its $4 gap higher on Jan. 22, and the upside volume appears to be somewhat weaker than in previous months.
Another caveat is that the stock is now trading above the parameters of the upper Bollinger bands.
The second stock with recent insider activity is Microsoft (NASDAQ:MSFT). In the past 30 days, several insiders have been taking profits, including:
- Founder Bill Gates sold 10 million shares for $29.43, collecting $294.3 million from the sale.
- Satya Nadella, President, Server and Tools Business, sold 20,000 shares for $29.76, generating $595,200 from the sale.
- Kurt DelBene, President, Microsoft Office division, sold 70,628 shares at $30.52, for more than $2.1 million.
Gates’ transaction was simply an automatic sale, so I give it much less importance than the direct sales of other company insiders. Gates has automatic sales set up on a regular basis every few months. However, it’s noteworthy that Gates has not made a direct open-market purchase in several years now.
Click to Enlarge The Microsoft stock chart, while looking overbought at 75 on its RSI indicator, seems much stronger than IBM right now, and in fact has about tripled the return of IBM since the end of 2011.
Therefore, we will want to see some weakening of that stock before initiating puts, and those who are long on MSFT can simply hold and perhaps tighten stop-losses to just below the 50-day moving average at $28.50. As that moving average rises, you can adjust your stop accordingly.