Leadership coaches preach that there is no I in "team." But there is an I in "winner." And two I's in "big winner.
In investing, the I reminds us that institutional investors drive the market. Who are the institutions? Mutual funds, pension funds and hedge funds, to start. Then there are insurance companies, banks and charitable and state institutions.
These players cycle trillions of dollars through the market with continual buying and selling. They employ experienced money managers, often supported by talented research teams.
They make their share of mistakes and bad calls. But in general, this is who investors refer to when they talk about "smart money.
This industrial-strength trading, which typically moves thousands of shares at a time, constrains or expands a stock's availability. That drives price up or down according to the rules of supply and demand.
When that starts to happen, you want to make sure you are on the right side of the deal.
So a key challenge for individual investors is to determine when unusually strong institutional buying and selling are taking place. This means recognizing such action as it sets the stage for an explosive advance in a stock's price. It also includes catching high-volume sell signals, which warn that large investors are taking profits after a winning run.
Some parts of the challenge are easy. Others take more time to master.
On the quick and easy side, have a look at IBD's Accumulation-Distribution Rating. This A (strongest) through E (weakest) gauge incorporates a number of and price-related metrics into a single indicator of a stock's level of institutional support.
You can also go to the Stock Checkup at Investors.com. Under the Checkup's Supply and Demand section, you find a stock's Acc-Dist. Rating, its percent change in fund ownership and the number of quarters of increasing fund ownership.
At the most basic level, a stock showing a strong or improving A-D Rating, increasing participation by funds, and the completion of a valid base pattern is likely being primed for a .
Keep in mind, stocks with a smaller float generally require less institutional support to drive a breakout. Big-cap companies with billions of shares often need a crowd of big-fisted buyers to force prices up into a long run.
Whether few or many, increasing by funds — as shown in the Stock Checkup — is a critical metric. A decreasing number of funds, unless shares are being collected by a smaller number of high-quality funds, is typically a clear warning of shrinking demand.
More advanced investors must learn to delve into stock charts. This is where you really start to recognize the fingerprints of large-scale investors at work.
Weekly charts can show trends of institutional buying or selling. Daily charts can reveal institutional activity on a much shorter-term basis.
The nuances of this side of institutional sleuthing are a central topic at IBD's investing workshops, held around the country. The higher the level workshop, the greater the detail in which they break down and discuss price-volume analysis.