The low trading volume in the stock market implies that many investors and institutional money may be sitting on the sidelines.
Yet for the professional money, such as hedge funds and private wealth, you cannot just sit on cash, since you’re usually paid a lofty amount to manage money and achieve above-average returns relative to the stock market.
As such, I constantly look at where the institutional money is going to get a sense of what investments may be interesting in the stock market.
The premise for this strategy is that the big-money guys have more clout with the companies, and as such, they may be able to get easier access to information on the company. Of course, insider trading and the release of material information to the stock market ahead of the general public are illegal. But then something small that you may deem to be immaterial could be a big clue for institutional investors.
If you follow the more successful funds or money in the stock market, you can get a good understanding of what stocks could be ready to make a move.
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Just because the overall direction of the stock market is down at this juncture doesn’t mean you should be resting on your laurels, waiting for the next trade to surface.
There are always opportunities to make money. You just need to be tuned in.
Social media company Facebook, Inc. (NASDAQ/FB) has had a great rally back up to above its initial public offering (IPO) price. Just consider the institutions that bought 4.98 million shares quarter to quarter. Could there be more to come? I’m not sure, but I like the pro money buying.
On the sell side, we all know that Wal-Mart Stores, Inc. (NYSE/WMT) just reported a dismal quarter. Well, it appears that the pro money had a sense of what was to come beforehand, selling 64 million shares quarter to quarter. Insiders also appear to have sold 166,049 shares in the stock market prior to the news. (Source: Yahoo! Finance, last accessed August 20, 2013.) Following the pro money here would have saved you some capital, especially if you were playing the long side of Wal-Mart.
Then there’s priceline.com Incorporated (NASDAQ/PCLN) and Google Inc. (NASDAQ/GOOG). These stocks are in a head-to-head race to become the first $1,000 stock. Yet if you are trying to guess which stock will get there first, take a look at the institutional money for a hint. Data show that Google could be the first $1,000 stock, as institutions purchased 1.73 million shares on a quarter-to-quarter basis. On the other hand, institutions have sold 2.44 million shares of priceline.com during the same period.
As for momentum stock Tesla Motors, Inc. (NASDAQ/TSLA), institutions divested 3.08 million shares, or 3.86% of the total holdings, quarter to quarter. However, insiders have been pretty even on both the buy and sell sides for this stock. My feeling is that with the massive stock increase, we’ll see profits being taken.
At this stage, the stock market appears to be seeing a bias to institutional selling, even in the conservative stocks, such as Colgate-Palmolive Company (NYSE/CL).
Given the record highs and uncertainties of the tapering, I’m not surprised to see the pro money exit the stock market, as is reflected by the light volume. Hint: this may be your cue to exit.
This article Why I Believe Google Will Be the First $1,000 Tech Stock was originally published at Investment Contrarians