With Canada's S&P/TSX composite index very close to its highest level in a year and a half, you might think corporate insiders are cashing in by selling their shares.
Curiously, they're not – even at a time when insider selling has significantly picked up in the United States as markets there approach all-time highs.
According to INK Research, which monitors trading activity in Canada by executives and directors within their own businesses, buyers still far outnumber sellers. Its INK indicator for TSX-listed stocks is at 144 per cent. That means there are more than 1.4 companies with key insider buying for every one with selling.
"Generally speaking, insiders are reluctant to sell now," said INK Research CEO Ted Dixon. "Their current behaviour is in contrast to less than a year ago when the S&P/TSX Composite Index was slipping but tried to stay above the 12,500 support level. On March 1st, our INK indicator dropped below 100 per cent. A month later, stocks broke to the downside."
So why aren't insiders more itching to sell? Mr. Dixon has a theory: global central bank behaviour.
Specifically, the recent election of Shinzo Abe in Japan should mean aggressive economic stimulus measures, and indeed, the Japanese yen has been weakening significantly of late - a big plus to the country's critical export sector. The Bank of Japan is under intense pressure from the elected arm of the government to raise prices and fight the deflationary spiral that has plagued the country for years.
The implication of Japanese policy moves for global markets is significant, Mr. Dixon points out, as Japan's actions could delay a rise in short-term interest rates in western economies.
"The war on deflation is heating up and Canadian insiders are unwilling to sell into it," said Mr. Dixon.
There is one exception, he notes. Insiders in the Canadian utilities sector have picked up their selling. "The sector is traditionally hurt by falling bond prices. So, perhaps insiders are signalling that the day of negative or near-negative real long-term bond yields is nearing an end."
INK's utilities indicator is at 57 per cent, meaning there are more companies with key insider selling now than buying. A reading of 100 per cent suggests there are an equal number of stocks with insider buying and selling.
From a broad perspective, it's a much different picture in the U.S.
Mark Hulbert at MarketWatch points out today that the Vickers Weekly Insider Report, published by Argus Research, shows the sell-to-buy ratio for NYSE-listed shares stood at 9.20-to-1 last week. That means that insiders were selling more than nine shares of their firms' stock for every one that they were buying.
The last time a weekly ratio was even more bearish was in late July 2011, just before the debt-ceiling debate terrified market participants.
Insiders know their businesses better than most investors, so their actions are worthy of attention. Do note, however, that their decisions do not always foreshadow market moves. Insiders in the U.S. have been selling for several weeks now - even as the market continued to rise.