11/16/2009 05:12 am ET Updated May 25, 2011

Feeding the Ducks on Wall Street

Since March, stocks have gone from strength to strength, recovering more than 40 percent of what they lost in the sell-off from the October 2007 peak. Not everyone is jumping on the bullish bandwagon, however. Reports indicate that many of those at Main Street's front lines are following the old Wall Street dictum: When the ducks are quacking, feed them.

In fact, despite talk in Washington and elsewhere that the economy is on the road to recovery, those who are in the best position to judge future prospects have been cashing out. According to Fortune, officers and directors have been dumping stock in the companies they work for and oversee "like there's no tomorrow."

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

Insiders aren't only fading the rally personally. The firms they are associated with are also slashing purchases of company-issued shares, suggesting they are not a bargain. According to a Bloomberg report citing research by Standard & Poor's, U.S. firms "spent the least on share buybacks in the second quarter since at least 1998."

Indeed, a growing number of them are going the other way, seeking to raise cash by selling stock. Reuters last week noted that "September is on pace to be the busiest month for secondary issuance since May, which to some portfolio managers is a sign companies are taking advantage of the market while they still can."

Other knowledgeable sellers coming are also coming out of the woodwork, including big-time financial operators. The Wall Street Journal reported that "private-equity firms are increasingly taking advantage of an improved IPO environment to exit from their investments," while Bloomberg said that "buyout managers and their bankers are seizing on an upswing in capital markets to sell shares in companies they own to pay down debt and distribute profits to their investors."

Of course, just because those who presumably have some sense of whether stocks are cheap aren't buying doesn't mean they can't go up. Sometimes, relatively thin trading conditions, aggressive speculation, and sheer momentum can push prices higher of their own accord, especially when, as we've seen lately, the volume one might expect to accompany a genuine bull market is lacking.

This morning, in fact, the Wall Street Journal revealed that "even as mom-and-pop investors sit out the rally, short-term players -- including some classic individual day traders -- appear to be making a comeback." Among other evidence, the newspaper cited increasing activity in "leveraged" exchange-traded funds, as well as financial stocks and other volatile shares, "favored tools among short-term traders such as hedge funds and day traders."

In the end, however, bull markets cannot be sustained by animal spirits alone; they need the support of strong fundamentals. Based on what those in the know have been doing, that key ingredient (still) seems to be missing.