Following the Money Trail: What the Pros Are Doing
The NASDAQ may be leading the way this year, but we are seeing some selling by institutional investors; you should make a note of this, since it could help in predicting markets. In my opinion, following where the professional money is flowing helps gives us another tool for predicting markets and helps us get a sense of what is happening.
The reality is that the pros generally have better access to the company’s executives and management and may be privy to better information, albeit they will surely never tell you this. Don’t believe me? Just try calling the company’s CEO. Your call will never be connected, as the assistant, or “gate keeper,” will not allow this. But if you were a top Wall Street analyst, your call would likely be connected. You may even be offered lunch.
The pros have an information advantage over the average Joe in predicting markets. The key would be to find out what the pros’ money is buying or selling, which helps when predicting markets.
The concept of tracking the money flow of institutional investors is the view that these experts are likely to understand the company’s situation more than anyone outside of the executive management group. By looking at the flow of money from institutional investors and monitoring what stocks they are buying, you can get a much better sense of what stocks may be in favor at that time, and this will assist in predicting markets. This especially holds true for the top-ranked institutional investors and money managers who are top in the money management business, because they are the very best and produce the top returns for clients when predicting markets.
In reality, institutional investors control vast sums of capital and can sway the direction of a stock that it buys or sells, so knowing where the funds flow helps in predicting markets. Institutional investors are also extremely accountable to their investors; hence, there is a high level of quality research and due diligence before taking a position.
If you adhere to this belief, then following the flow of pro money would make a whole lot of sense in predicting markets.
Look at some of the recent transactions. Apple Inc. (NASDAQ/AAPL) traded at a record high of $674.88 on Tuesday. A closer look at the institutional investors ownership show a 3.1% net sale of Apple stock over the last quarter to quarter, representing 19.2 million net shares sold by institutions. (Source: Thomson Financial.) This is not a lot of selling for a company the size of Apple, given its recent gains. The key now is to monitor if institutional selling picks up in the following weeks and months in predicting markets.
On the other end, Groupon, Inc. (NASDAQ/GRPN) got hammered on August 14 after a mixed second quarter in which growth was not as strong as some wanted to see. Yet institutions leading up to the release of the report were buying, with holdings up 7.6% or 22.2 million shares quarter-to-quarter. Now watch to see if the buying continues or falters after this news.
We see a pattern with the net selling of other key technology stocks, including heavy selling in priceline.com Incorporated (NASDAQ/PCLN), with just under three million net shares sold, or down 6.3% in institutional ownership. Others include Google Inc. (NASDAQ/GOOG), down 1.7%, and Amazon.com, Inc. (NASDAQ/AMZN), down 2.2%. Movement in these big stocks can help in predicting markets.
In retail, Wal-Mart Stores, Inc. (NYSE/WMT) is being sold, down 4.3% in institutional ownership.
In the restaurant sector, there is heavy selling in Chipotle Mexican Grill, Inc (NYSE/CMG) with a 9.4% decline in institutional ownership and McDonalds Corporation (NYSE/MCD), down 3.9%.
There’s buying in some of the big dividend paying stocks, with the exception of the embattled bank stocks.
We are seeing some big-time buying in utility services company Exelon Corporation (NYSE/EXC) with 55.8 million net shares bought by institutional investors over the past quarter-to-quarter, up 788% in institutional investor ownership.
The bottom line is you need to monitor what institutional investors are doing to get a sense of what stocks could be moving, which will ultimately help in predicting markets.
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