How can small investors tell when institutions are buying or selling? (November 27, 2000)

  The easiest and most accurate way to determine this is to watch the price of a stock or index versus the volume. What we like to see is a stock or index rising on rising volume. It does not have to rise every day, but over a week's time we want to see clear majority of days that gains are made on increasing volume. On the selling days, we want to see volume pull back. That shows us that there are more buyers than sellers because volume is higher when a stock moves up. More people want to own the stock than sell it; supply and demand.

If a stock or index rises on lower and lower volume, that indicates that institutions are not buying into the move up. If the stock starts down and volume rises, that shows that the big players are starting to sell into the advance. They are dumping shares. We might see the stock or index turn back up for a day on stronger volume and think things are getting better. Maybe, but we have seen way too many days this year where we saw a turn back up on rising volume, but it could not last. A few institutions can buy into a rally, but if others do not join in, it won't last for long. Indeed, other institutions often use that rally as a chance to unload more shares at a higher price.

That is why confirmation is an important step. After that initial attempt at rallying we may see some selling into it. If it has legs, i.e., the support of institutions, those institutions will use that selling as another buying opportunity to snap up shares at a lower price. Thus, another higher volume move up results. If we see a stock or index clear resistance on strong volume, that is another good sign that institutions are at work as they kept on buying and did not sell at resistance. Watch price and volume action. It is the best indicator of when the big players are getting in or out of individual stocks or the market.

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