The stock market is one of capitalism's most nonprejudicial playing fields.
It doesn't care about sex, age, ethnicity or education level. Pay for your shares and you are in — up or down. It is skewed only in the favor of smarts, intuition and experience.
Some would argue that the market favors size. And it is true that institutions, as a whole, control supply and demand, influencing the behavior of a stock.
But there is nothing to prevent the little guy, your Uncle Joe, from going along for the ride. Figuring out where the ride begins and ends is the trick.
This is where the I, for Institutional , comes in for investors.
Institutional investors are mutual funds, hedge funds, ETFs and insurance companies. Banks, university and charity endowments and corporate pensions also move mountains within the market.
These market players tend to buy tens of hundreds of thousands, sometimes millions, of shares when moving into or out of a stock. In buying mode, such purchases often dictate the price action that ultimately scribes bases seen in stock charts.
What should the individual investor do? Look for proper buy points. They mark the price level in such charts where the supply is tightened, weaker shareholders have exited and the stock is most likely to react positively to additional demand.
The more big buyers behind such a setup, the better. How do you determine when that's the case
One thorny problem is that institutions don't report their investments until after the end of each quarter. This means you can find out what they've done, but you can never find out specifically what they are doing unless someone like a Warren Buffett comes out and essentially declares, "I'm buying railroad stocks.
This is why learning to read charts is crucial. The more proficient you become at reading charts, the more you learn to recognize the footprints of institutional buying and selling.
Price gains in increased , daily or weekly closes above their midpoint, particularly in strong volume and upside reversals in strong trade, can all signal accumulation — another term for institutional buying.
You can also use several gauges listed under the Technical Performance portion of the Stock Checkup page at investors.com. You can reach the page simply by typing a stock ticker into the website search window.
Among these, the Accumulation-Distribution Rating grades a stock's institutional support. 'A' and 'B' grades are best.
A reading of 1.0 or higher on the Up/Down Volume of 1.0 gauge indicates buying pressure. The percent change in funds and number of quarters of increasing fund ownership give clear pictures of institutional demand.