Stock Take

Short sellers:The percentage of shares being sold short (when traders bet on a price decline) has barely budged in the US since April. Things are surely different in Europe, given that short-selling bans on more than 60 financial companies in Belgium, France, Italy and Spain were recently introduced?

Well, no.

In Belgium, France and Spain, the aforementioned financial stocks have attracted less short selling than the market as a whole, according to British outfit Data Explorers. Shorting of Italian financials is slightly above the market average, although shorting of both financial and non-financial stocks has been muted, with a sharp decline in such bets since April.

An IMF report this week found that German short-selling restrictions put in place last year “substantially” reduced market efficiency and failed to support stock prices.

So why the declines? Because long investors have been selling. Perhaps a ban on selling is in order?

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Insider enthusiasm: US company directors, we noted recently, were failing to find value in their own company stock, with insider buying drying up to levels rarely seen. The recent correction has changed all that, however.

According to the Vickers Weekly Insider Report, the number of buy transactions has increased 16-fold over the last three weeks. The ratio of sale-to- buy transaction rarely drops below 1, Vickers notes, but recently it fell to as low as 0.35 – the lowest reading since 1998.

Data from InsiderScore, another insider tracking firm, is similarly bullish. It estimates that over the last eight years, buying only twice exceeded current levels – November 2008 and March 2009. Insiders were early on the former occasion, although large gains eventually followed, while markets bottomed in March.

Insiders can get it wrong; for example, they were heavy buyers in late 2007 and early 2008. Nevertheless, market bulls will be relieved that company directors have cast aside their previous caution and put their own money to work.

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Death cross:US markets recently witnessed a so-called "death cross", with the 50-day moving average of key indices moving below their longer-term 200-day moving average. A high-profile bear market indicator, advocates say acting on this signal can protect investors from serious losses. Can it?

Yes – and no. Such a signal will obviously keep investors out of down-trending markets, but it’s of no use in choppy sideways markets or bull markets. Statistical analysis shows that overall, markets are less bullish following death crosses. Nevertheless, markets have still, on average, gained following death crosses.

Investors have many concerns at the moment, but the death cross shouldn’t be one of them.