Large mutual funds make up 70% of the stock market’s trading volume, thus they have the buying power to make or break a stock. The level of research they undertake is also on a bigger scale: In addition to combing through balance sheets, mutual funds determine a stock’s growth potential by sending out analysts to conduct company research on-site, including interviews with CEOs and other company leaders. As individual investors, we don’t have that kind of corporate access, but we can take advantage of funds’ high-level knowledge by tracking the stocks that they are accumulating


How do we track them? The footprint that funds, or institutions, leave behind can be seen in trading volume and chart patterns. When we see leading stocks break out on high volume, we expect funds to continue to drive the stock price higher because the stock is under “institutional accumulation” (institutions = funds = Big Money). This is why we follow chart patterns, breakouts, and volume levels so closely in our shop.


MarketSmith has two  data points in particular that  are useful for identifying stocks undergoing institutional accumulation:

1. The Accumulation/ Distribution Rating is one of our exclusive proprietary SmartSelect Ratings. It tracks the relative degree of institutional buying (accumulation) and selling (distribution) in a particular stock over the last 13 weeks. Updated daily, stocks are rated on an A+ to E scale.


A = Heavy buying, B = Moderate buying, C = Equal amount of buying and selling, D = Moderate selling, and E = Heavy selling.


2. The Up/Down Volume Ratio is a 50-day ratio that is derived by dividing total volume on up days by the total volume on down days. A ratio greater than 1.0 implies positive demand for a stock.


To learn more about fund ownership, you can view our webinar “Understanding Fund Ownership” by clicking here.


As always, if you have any questions  give us a call at (800) 424-9033 or send an email to reachus@marketsmith.com.


Best returns,


 

The MarketSmith Team