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Regardless of what the loudmouthed know-it-all in the locker room thinks, retail investors (that's code for you and me) don't have much of an impact on stock prices.
It might be fun to think that buying 100 shares of Apple Inc. (Nasdaq: AAPL) is somehow part of some larger force of collective wisdom pushing stock prices higher – but with average liquidity of nearly $5 billion (in AAPL shares) the only players with enough might to make the stock move are the big boys – institutional buyers.
When I say institutional buyers, I'm referring to mutual funds, hedge funds, pension funds, and insurance companies.
It's nearly impossible for a stock to deliver a huge upside run without the deep-pocketed firepower of institutional buying – and that's why it's so important to look for clues indicating they're building positions and scooping shares.
After all, wouldn't you rather go sailing with the wind doing the work rather than paddling back to shore?
I know I sure would. And here's how we can…
Read the Signals Wall Street Is Trying to Hide
To really illustrate what I'm referring to let's go back to AAPL for just a moment.
Pardon me, in advance, I'm about to trot out a few numbers- but I swear it will be brief.
Over the last 50 days, AAPL's average daily volume has been 53.4 million shares. The stock's average share price over the same time period was $96.75, which means over the last 50 days AAPL stock experienced roughly $5.2 billion worth of trading volume each day – or roughly $258 billion trading volume over the entire 50-day period.
That's what I'm talking about when I talk about institutional buying power.
Because institutions are working with such large amounts of capital, they need to spread their purchases out over much longer time frames than you and me. It's not uncommon for it to take an institutional buyer several weeks or even months to actually build the desired position.
If I'm an institutional buyer looking to establish a $100 million (or more) position in a stock I'm not going to just queue up a single order and hit the "send" button. No way – that single order would not only tip my hat to day traders, but an order of that size would disrupt pricing and I'd likely end up grossly overpaying.
Instead, institutional buyers will typically spread out their purchases over several weeks or even months in order to keep their cards close to their vest and avoid pricing anomalies.
And here's the exciting part…
About the Author
Sid is the investment community's best-kept secret. Since 2009, he's served at Money Map Press as Director of Research, analyzing thousands of securities and profit opportunities for subscribers. He's an expert in identifying "alpha" potential in a wide variety of industries, but especially the small-cap sector, where he's discovered a pattern of profits that's almost foolproof.