Traders and investors alike need to be aware that over 70% of the volume in the US stock market is driven by institutions. One interesting thing about institutions is that rarely do they take a position in full all at once. Instead, they prefer to build their position over a few weeks. However, when they decide to take profits and exit their positions, it's sudden and has the same effect as a guillotine. This is the scenario we watched unfold last week.
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| PHOTOGRAPHED BY RYAN MCGUIRE |
It's difficult to know what caused institutions to behave the way they did. Perhaps the jobs report wasn't to their liking? Did the GDP report spook them? Or maybe the recent comments from the Fed were the real catalyst. Could it even be the pending deal with Iran? All I know is that they reacted by dumping their weak stock positions in high volume. The result? All major indices are trading below the 50 day simple moving averages (SMA).
What's Coming This Week?
What's Coming This Week?
Earnings season starts this week with companies reporting their Q1 performances. First quarter GDP is unlikely to impress anyone it's tough to predict how institutions might react to this new round of reports. Surprisingly, some sectors such as; energy (XLE), industrials (XLI) and the materials (XLB) are already trading below the 200 day SMA. With the transport sector (DJT or IYT) trading below the 200 day SMA as well, it's not looking pretty for the health of the over all manufacturing zone of our economy. You can be sure that institutions are keenly aware of all of this.
Institutions Are Flush With Cash. Where Will They Send It?
IBD® is calling the market as “Uptrend under Pressure" and last week we added some more distribution days on the SPY and NASDAQ. For those that don't know what a distribution day is, IBD® has a great break down available here.
Institutions Are Flush With Cash. Where Will They Send It?
IBD® is calling the market as “Uptrend under Pressure" and last week we added some more distribution days on the SPY and NASDAQ. For those that don't know what a distribution day is, IBD® has a great break down available here.
We've faced a total of 18 distribution days this quarter - 4 coming just last week. That is pretty alarming to me so I'm inclined not to take any new positions right now. Instead, I'm conserving my capital so that I can deploy it when the market isn't as volatile.
For bolder traders, take your lead from institutions. They have maintained some of their core positions in the retail sector. Under current market conditions, look only at stocks that are in the sectors institutions favor. I also check to see if a stock is trading above the 21 day EMA. Here are 3 stocks that meet such strict criteria:
$FL
$EA
$KR
I'm sticking with a low risk approach in order to conserve capital. I'll feel more at ease when institutions get back into the fold. The road sign in my opinion is when the SPY breaks above 213 long term resistance in high volume for at least 2 days in a row. I want to do everything I can to get the odds in my favor and I sleep a lot better when I know that institutions are participating in the stocks I like.
$FL
$EA
$KR
I'm sticking with a low risk approach in order to conserve capital. I'll feel more at ease when institutions get back into the fold. The road sign in my opinion is when the SPY breaks above 213 long term resistance in high volume for at least 2 days in a row. I want to do everything I can to get the odds in my favor and I sleep a lot better when I know that institutions are participating in the stocks I like.
Watch for my next post on Wednesday where I'll dig into the 2nd part of my 5 part series on how I build my watch list.
Happy trading!
Amin
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