Stock Market: How To Tell Institutions Are Sellers While 'Mom & Pops' Are Buyers
As the markets hover near all time highs, many wonder if we are headed sharply higher or will see another sharp pullback? The answer can be found simply by looking at who is buying the market and who is selling the market. Remember, anytime stock exchanges hands, there must be a buyer and a seller to the transaction. In general, if big institutions are net buyers of stocks, we would expect the market to go higher. If institutions are net sellers of stocks, the market should head lower. Why? Because they are the hall of famers, the all-stars. They have more information, inside information and have more experience than the rest of us. Generally, they will be correct. To make money in the markets, you ideally would like to be on the same side of the trade as the big banks, institutions and large hedge funds.
Data released over the weekend showed that the average investor put around $10 billion Dollars into the market in the week prior. This was the largest mutual fund inflow in three months. So right off the bat we see the small investor buying heavily. So how do we know what the large institutions are doing? Simply look at the price action on the markets. Note how the markets have hammered on their all-time highs on the S&P 500 but have not been able to break out above. If small investors (which we know are buying) and institutions were buying, the net buying would be ripping this market through those all-time highs. The fact that the stock market keeps getting pushed down at the all-time highs, tells us institutions are net sellers. This is the only way the markets would not be continuing to break the January 15th, 2014 highs and in dramatic fashion.
If institutions are sellers, I want to be a seller (short). While that direction has not paid off yet, if the big boys are positioning themselves that way, you can bet it will work soon.