As the markets hover near all-time highs, many wonder if we are headed sharply higher or toward another sharp pullback? The answer can be found simply by looking at who's buying and who is selling the market. Remember, whenever a stock changes hands, there's a buyer and a seller on either side of that transaction.
Big Buyers, Big Moves
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're the hall of famers, the all-stars. They have more inside information and experience than the rest of us. Generally, they will be correct. To make money in the markets, you would, ideally, want 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. That was the largest mutual-fund inflow in three months. Right off the bat we saw 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 at their all-time highs on the S&P 500 but have not been able to break out above. If small investors, which we know have been buying as 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 the institutions are net sellers. Were it not the case, we'd have already broken the January 15th, 2014 highs 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.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com