Stock and commodity markets became wildly over-valued over the past year. Now there is a growing realization that maybe economic growth going forward won't be as stellar as prices suggest. The key point is that over-valued assets, like over-leveraged people, are highly susceptible to downside surprise:
Outsiders better pay attention here because insiders have been selling their shares into the market strength with great conviction the past several months:
What leads us to talk about PowerShares QQQ (you thought we'd never get around to telling you) was Alan Newman's CrossCurrents advisory letter, published a fortnight ago. More particularly, his survey of insider transactions in the top eight issues in the ETF. He performed the exercise on May 10 and what he discovered was rather astounding.
There were 231 sellers and three buyers, which works out to a somewhat lopsided ratio of 77 to 1. All told, the insiders sold 59.8 million shares and purchased 15,200 shares, a sell/buy ratio of 3,933 to l. Not exactly a resounding vote of confidence in the prospects for their companies.
Moreover, Alan notes, analysts are just as positive on the QQQ leaders as they were back in March 2008 before a 37% fall in price. At that time, 74.1% of the recommendations were Buys and 2.9% were Sells. As of May 10, 2010, 77.7% were Buys and 3.6% Sells. The more things change, we guess, the more things stay the same, especially on Wall Street.
See: Barrons: Orgy of Speculation
People who are holding and hoping have an uncomfortably high chance of loses over the next few months. If your financial advisor is telling you “don’t worry be happy” again for heaven’s sake SNAP OUT OF IT.