HOME OF "PICTURES OF A STOCK MARKET MANIA"
Alan M. Newman's Stock Market CROSSCURRENTS
Alan M. Newman, Editor
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Total margin debt increased another 2.2% in April to $265.2billion, uncomfortably more than the $260.4 billion registered at the end of January 2000,a mere ten weeks from the manic peak. What is even more striking is that totalmargin debt represented a larger share of the market at the end of April 2006 than at theend of January 2000, up from roughly 1.5% to 1.6% of total market capitalization. Given the fall out from the manic peak, this is an astonishing display of confidence, orshould we say utter complacency?
Even at the absolute peak in March 2000, it is hard to make a casethat margin debt represented a much larger share of total capitalization, perhaps only1.65%. Thus, we can easily make the argument that leverage is at the second highestlevel ever and bear in mind that mutual fund cash levels are very near their all timelows. Both of these circumstances indicate tremendous optimism. In the past,that has usually been a great time to take the opposite view.
Insider activity amongst the 30 Dow Industrial companies paint avivid picture; insiders simply have very little use for their own shares and wouldinstead, prefer to cash in. Please note, there was no insider activity for GeneralMotors (GM), Honeywell (HON) or 3 M Co. (MM). Although the stats are as expected,they are nowhere near as rotten as they are for the Nasdaq giants, where there is onlydisdain for company stock. However, insider support at the venerable Dow 30companies is somewhat scarce, while avoidance appears widespread.
Sellers outnumbers buyers by a ratio of 7.8 to 1 and 126 shareswere sold to each share purchased. In our prior tallies since February 2002,the current sales to buys ratio was the second worst we have recorded and the ratio ofshares sold to shares purchased was the third worst of our ten tallies. Whiletoday’s tally certainly does not signify a mass exit by insiders, it is none theless, very depressing. Why are insiders selling? Simple. Pricesare extremely high.
The only positive note of substance was sounded at GeneralElectric (GE), where we found 9 buyers versus 13 sellers. The average buy was closeto 14,000 shares. Although our analysis shows a substantial portion of the purchaseswere options related, enough cash was spent by insiders to assume confidence that theshares were undervalued. Chairman Jeffrey Immelt purchased 15,000 shares on May 6that $34.38, clearly a sign of confidence. If we had to choose only one stock from thegroup to own, it would be GE.
Seven companies had multiple buyers while 23 had multiplesellers. All of the companies with multiple buyers except one, had sufficientselling to counteract any notion of insider confidence. The lone exception was CocaCola (KO) with three buyers and zero sellers. But even there, the purchases averagedonly 5000 shares, no big deal.
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ABOUT ALAN M. NEWMAN
Alan M. Newman has been the Editor of CROSSCURRENTS since the firstissue was published in May of 1990. Mr. Newman is also a member of the Market Technician'sAssociation and has been widely quoted for years by the financialpress, media, and other newsletters and has written articles for BARRON'S.
The newsletter is published roughly every three weeks and focuseson economic and stock market commentary, often covering controversial subjects. Severalproprietary technical indicators are usually featured in every issue accompanied bycurrent interpretation. Broad samples of our work can be viewed at
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