Insider Selling Signals Little Upside Left In Some Stocks

By Cory Mitchell | March 27, 2012 AAA

While insider selling or buying is a not a definitive buy or sell or indicator, it can provide insight into what insiders think the prospects of the company are going forward. Insider sales are especially interesting because if the insider thought the stock would keep rising it is unlikely they would sell their shares at the current price. On March 21 and March 22 more than $100 million worth of stock was sold by a DSW Inc. (NYSE:DSW) insider. Combining this information with the technical outlook of the stock provides a more complete picture on how likely it is that the apparel store, DSW Inc., will continue to rise in price. While overall the apparel space is doing very well this year, this stock and several others in the industry have been showing signs that maybe this insider knew what he was doing.

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DSW Inc. has a good run to upside year, sporting roughly a 23% gain YTD. Throughout late February and March the stock has been stagnant, moving sideways while the S&P 500 SPDRS (ARCA:SPY) ETF has rather relentlessly forged new highs during that time. With the stock unable to move higher even while a significant portion of stocks have been moving higher over the last month, the insider transaction seems well timed and alerts to potential danger. If the stock stops moving higher while being pushed by the market, and if the market sees a decline there is likely to be very little buying support left in DSW Inc. Currently the stock is range-bound between approximately $57.06 and $52.80. A drop below $52.80 confirms a downside move with an initial target of about $49. The sharp decline in on-balance volume recently supports the theory that the stock could weaken going forward. On the other hand, a close above $57 would trigger a range breakout, which has the potential to move the stock to $60 to $61.

SEE: Insider Selling Isn't Always A Bad Sign

Chico's FAS Inc (NYSE:CHS) is up over 38% YTD, a good chunk of that coming from a gap higher that occurred on February 22. Since that gap, the stock has been stuck. Like DSW, even while the broader market has pushed higher in March, Chico's has seen little progress and finished down slightly on Monday even as the S&P 500 turned in a 1.39% gain. The range tells the real tale. The stock has been trading between $15.79 and support above $14.14. A drop below $14.14 given the anemic price action recently, would close the gap higher and provide a target of $12.75. $14.90 should also be watched, as a drop below that level means $14.14 is likely to be tested. On-balance volume is holding, signaling there is still buying interest in the stocks. A push above the $15.79 could mean renewed interest and upside target of $16.85 (52-week high is at $16.50).

SEE: 52-Week Highs/Lows

Urban Outfitters (Nasdaq:URBN) has had a choppy year with multiple significant gaps in the price occurring so far in 2012. The stock has repeatedly faltered at the $30 level, a level it once again approached on Monday. Since mid-January the stock has been trending higher, and on-balance volume is confirming the rise. The close above $30 is a pivotal marker for the stock, having penetrated the level on an intra-day basis Urban Outfitters has not closed above $30 since August, 2011. Closing above $30 is not likely to be an easy feat though, but if it does the next target is $33.90. Weakness near this strong resistance levels means $28 is likely to been seen in short order, with a drop below $27.50 signaling a larger potential decline.

Men's Wearhouse (NYSE:MW) had a great January and February with those two months contributing most of the nearly 25% the gain has seen so far this year. Through March that trend has slowed, and the stock has moved sideways as the market continues to move higher. This divergence is a cause for some short-term concern. Support is $37.80 and a drop below that indicates a downside target around $35. The stock still has buying interest though, as it jumped 2.85% on Monday. Whether the stock can move above this range, above $41, will be the test for the bulls. Failure at $41 means $38 is likely to be test quickly. A break above $41 sets a new 52-week high and provides a target of $44.



The Bottom Line
The Apparel Store industry has been doing very well this year, but these four stocks have leveled off over the last month as the major indexes have continued to rally. The major insider sell transaction in DSW Inc. last week is a cautionary signal for the stocks that have failed to move higher over the last month. While all these companies are up for the year, the price action through March is showing that these stocks - at least for right now - are relatively weak compared to the market. Further upside may still be in the cards, but based on current conditions downside is more likely than upside.

SEE: The 4 R's Of Investing In Retail

At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.

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