Insiders are selling en masse:

NEW YORK (Fortune) — Can hundreds of stock-selling insiders be wrong?

The stock market has mounted an historic rally since it hit a low in March. The S&P 500 is up 55%, as U.S. job losses have slowed and credit markets have stabilized.

But against that improving backdrop, one indicator has turned distinctly bearish: Corporate officers and directors have been selling shares at a pace last seen just before the onset of the subprime malaise two years ago.

While a wave of insider selling doesn’t necessarily foretell a stock market downturn, it suggests that those with the first read on business trends don’t believe current stock prices are justified by economic fundamentals.

“It’s not a very complicated story,” said Charles Biderman, who runs market research firm Trim Tabs. “Insiders know better than you and me. If prices are too high, they sell.”

Biderman, who says there were $31 worth of insider stock sales in August for every $1 of insider buys, isn’t the only one who has taken note. Ben Silverman, director of research at the web site that tracks trading action, said insiders are selling at their most aggressive clip since the summer of 2007.

Silverman said the “orgy of selling” is noteworthy because corporate insiders were aggressive buyers of the market’s spring dip. The S&P 500 dropped as low as 666 in early March before the recent rally took it back above 1,000.

“That was a great call,” Silverman said. “They were buying when prices were low, so it makes sense to look at what they’re doing now that prices are higher.”

There are a few caveats to the insider selling story. First, high levels of insider selling have occurred at other times that did not turn out to be tops. For instance, insider selling was at a high level in 2002 right near the bottom of the last bear market (for instance, see this story from December, 2002). Second, I think insiders may permanently act differently after the experience of last year. The danger of keeping a large portion of your net worth in the stock of your employer became more obvious last year. Ask Dick Fuld who lost a cool $1 billion in Lehman stock. Or any of the big insider holders of Bear Stearns. Insiders may just be taking this opportunity to really diversify their holdings. Last, the rich have debts to pay too and no group is paying down debt faster than the wealthy.

Having said all that, insider selling can’t be ignored. I generally look at insider activity when I buy individual stocks but I’m more interested in buying than selling. There are lots of reasons insiders might be selling but only one reason to buy. Anyway, this is just another of the long list of warning signals the market is sending. I don’t know how much longer this rally will last, but it is definitely long in the tooth.

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