Investor Spotlight

Follow the Institutions

"Wanting too much, too fast - without doing the necessary preparation, learning the soundest methods, or acquiring the essential skills and discipline - can be your downfall."

By Mr. William J. O'Neil (Founder of Investors Business Daily)

I have quite often mentioned that the institutions - hedge funds, pension funds and the mutual funds - are the ones that account for over 75% of the daily trading volume that occurs in the stock market. They are the ones that ultimately determine the price of the stock. We as retail investors have to learn to read the clues that the institutions leave behind by studying stock charts. It's hard for them to hide their intentions when they are investing several hundred million dollars over a period of several weeks to acquire the size of a position in a stock of their choice. It's equally hard for them to hide their intentions when they start to dispose of a stock that is out of favour with them.

In my post last week I had compared the performance of 2 retail stocks - $JCP and $AMZN. Market has been correcting for the past 3 weeks because the institutions are harvesting profits. Last week the leading Growth Stock Index $QQQ corrected - 2.67% but $AMZN corrected - 2.45% (less than the index did). $JCP on the other hand corrected - 18.42%. It had already corrected -98.69% since the highs achieved in Feb of 2007. $JCP is now trading at 93 cents while $AMZN is hovering at $1823.00.

Ouch ! ouch ! ouch !

Buying LOW and selling HIGH certainly didn't work with $JCP.

Buying HIGH and selling HIGHER certainly did work with $AMZN.

Institutions usually take several weeks to accumulate the full size position in a stock of their choice. That is why the price of stock gradually keeps getting higher over a period of several weeks. This is one reason why buying the stock at correct buy point as identified by IBD is the prudent thing to do.

Game Plan for This Week

I hope everyone enjoyed celebrating the 3 day Memorial Day weekend. Market is in correction right now but we have already experienced 3 days of rally attempt in the market since May 14th. No one knows what the market will do in the coming weeks. We could just as easily have a "Follow Thru" day if the $QQQ or the $SPY moves up + 2% in above average volume in the coming days. Don't fall into the trap with the common perception in the stock market that says "Sell in May and Go Away". In 2018 we infact had a "Follow Thru" day on May 4th, July 6th(right after the July 4th celebrations) and August 7th.

The 3 major indexes - $DJI, $SPY and $QQQ - are all hovering above the 50 day sma(simple moving average). We had 3 days of attempted rally after attaining the lows on May 13th but the indexes were dragged down back to those lows by Friday May 24th. There were however some Growth Stocks that did not retrace as much as the 3 indexes did. Some of these stocks are still above the 20 day sma. That indicates a clear preferance from the institutions for those stocks. Some of these leading stocks that are trading above the 20 day sma and indicating a high RS ratings by IBD (Investors Business Daily) are:

$CYBR ... $129.74
$LULU ... $174.64
$MA ... $249.85
$MNST ... $ 59.69
$NOW ... $269.27
$OLLI ... $ 99.42
$PAYC ... $203.20
$PYPL ... $108.54
$TEAM ... $125.31
$TWLO ... $133.32
$V ... $163.03
$VEEV ... $139.75
$VMW ... $200.13
$ZS ... $ 70.90

I have indicated the resistance points next to the stock symbol. They will change as the market progresses this coming week. Consolidating for the coming week would be a good thing for these stocks. It may provide a better entry for an initial small purchase or to add to the position you may already have when we do get a "Follow Thru" day.

Mentoring Program

I shall be opening up a few slots over the summer months in my Mentoring Program. June thru September are slow months usually in the market. Historically our best quarter is from October thru Dec. Now is an ideal time to learn to trade and invest utilizing growth stock strategies of IBD(Investors Business Daily).

Schedule a FREE 30 minutes of "Discovery Call" with us and learn the basics of reading the Stock Charts:

How to find the winning Growth Stocks?
How to Buy the Stocks Right?
How to Sell the stocks Right?
How to TIME the market?
How to protect and harvest your profits?