If you want to make big money in the market, learn to gauge institutional support when looking into a possible leader.
Most traders don't bother. Yet the savvy IBD reader knows that institutional support is one of the most important factors of a stock's winning run.
The Accumulation/Distribution Rating from IBD helps any investor determine the level of buying or selling of any particular stock.
Why does this matter
If institutions are buying with force, the stock price is very likely to rise sharply. If big investors are scarce, or worse, getting out of a particular stock, individual investors just buying into that stock are on the wrong side of the supply and demand equation.
Who are institutional investors? Mutual, pension and hedge funds, for starters. Insurance companies, banks and corporations also do the work of tending those billion-dollar stockpiles of cash we keep reading about.
These are the buyers that can move into serious stocks and constrict the number of readily available shares to the point where fresh buying begins to drive prices higher. This process is how bases, breakouts and winning runs take shape.
To get your finger on a stock's institutional pulse, you can start with either the Stock Quote or Stock Checkup functions at Investors.com. Type in a stock ticker. Scroll down the page until you see Accumulation/Distribution Rating. A grade of C+ or better is passable. A grade of A or B puts you in the strike zone.
The Accumulation/Distribution Rating takes on even more dimension when used in combination with the Stock Checkup's Up/Down Volume ratio. An up/down reading of 1.0 or better indicates a stock under buying pressure.
In print, or in eIBD, you can find the rating in IBD's daily Smart NYSE & Nasdaq Tables. They are also in lists including IBD 50, Your Weekly Review, the Big Cap 20 and Stock Spotlight.
F5 Networks (FFIV) began building a six-week cup at the end of July, 2009. Even in the first week of the base, it held an Accumulation Rating of A. At the end of the six weeks, just ahead of the breakout, the rating had softened to a still very solid B+.
It crept past the 38.90 buy point in soft trade Sept. 9 (weekly chart is shown). But as F5 was building a base, on a few sessions, the stock gained ground in trading far above normal as 2 to 3 million shares changed hands a day.
The stock posted four weeks of tight closes. This presented an additional buy point at 39.86.
Again, F5 snuck past that buy point in just average trade, but the stock gained for nine straight sessions, with volume rising in the final two days.
Huge volume finally arrived on Oct. 22, as F5 jumped 16% in five times its usual trade. The stock gained 269% in 15 months.