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Insider activity suggests TSX consumer stocks could be in trouble Add to ...

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A word of caution for investors who believe the good times are going to continue in the consumer cyclical sector of the TSX: corporate insiders are bracing for a pullback.

Consumer cyclicals has been the top performing sector on the TSX this year, with gains of about 35 per cent.

But there are now about 2.5 stocks with key insider selling for every stock with buying, according to INK Research, which monitors the buying and selling of stocks by executives and directors within their own businesses. That figure is based on insider transactions filed over the past 60 days.

INK Research now considers the sector as “overvalued” – signalling that investors may want to take profits or go easy on further exposure.

Its overall sentiment indicator for TSX-listed stocks is also moving further into the caution range, at 86.8 per cent from 93.2 per cent a week ago. At 100 per cent, the buying-selling ratio is effectively equal; the further below 100 per cent, the more selling interest.

INK Research considers this a “fair-valued” reading for the TSX, and there’s certainly a more even match between buyers and sellers here than in the U.S.. INK’s U.S. indicator is sitting at a multi-year low of 21.5 per cent, meaning there are more than four stocks with key insider selling for every one with buying.

“From an insider perspective, the U.S. market is highly overvalued,” commented INK Research CEO Ted Dixon in a research note. “However, stocks could get even more expensive as the US central bank continues to generate asset price inflation through its $85-billion (U.S.) per month in fixed income purchases.”

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