Delray Beach, Florida

Throughout this rally insiders have been selling company shares. That's bearish price action and signals potential trouble for the market at some point.

While en route to visit the editorial group at The Sovereign Society in south Florida this weekend I noticed more bad news in the world of corporate insider trends. Actually, I'd say "alarming" better describes what's happening in August.

Over the last few months I've been documenting the results of broad trends in insider sales. It's important to follow what the insiders are doing because they know business prospects better than anyone else – including analysts. And when they're bullish on the economy (or revenues), they're big buyers.

Since April, according to Insiderscore.com, U.S. executives have been aggressive sellers of company stock; through July 31 that ratio was 2 to 1 and the highest since the spring of 2007.

But on Saturday Jason Zweig in The Wall Street Journal (8/29/09, page B1) reported a massive burst of selling to the tune of 31 to 1, according to TrimTabs Investment Research. That means insiders are selling 31 shares of company stock for every one share they're purchasing. That's one bad ratio.

How is an investor supposed to react to this data?

I don't think an objective investor can rely on just one set of market data. Focusing on several important indicators or numerous data points can certainly help to make a better investment decision as opposed to relying on just one piece of market information. Still, the insider ratios above are alarming and strongly suggest we're approaching the peak of this post-March rally; in the 18 years I've been following insider trends I've never seen such bearish ratios.

Investors can track the results of the biggest weekly insider purchases and sales every Saturday in The Wall Street Journal under Insider-Trading Spotlight. The latest data shows the largest purchases around $5.4 million dollars (and most under $1 million dollars) compared to a stunning $132 million for the largest sale; most sellers dumped shares at an average value of about $22 million dollars for the latest week under review.

What this data clearly reveals is that U.S. corporate executives are bearish on the prospects of an economic recovery and are taking advantage of the 50%-plus post-March 9 rally and "getting out of Dodge."

The last time American insiders were bullish en masse was back in late 2002 and early 2003. That's when a parade of buying occurred – just as the stock bottomed in October 2002 and started to rally in March 2003. Insiders made the right call.