I can’t stress the importance of Step #2 enough!
It’s the main driving force behind our sector buying strategy!
There are lots of places to look for signs that institutions are buying or selling a stock or a sector.
Some look at trading volume. Some look at price behavior to see if the chart is making higher highs and higher lows. Both are pretty basic.
But I follow a very easy program that’s the most reliable set of tools I’ve ever seen in my 23+ years of investing professionally.
Every of the 41 sectors have what’s called a BPI or Bullish Percent Index. And the sector’s BPI is one tool that tells you if institutions are buying or selling the sector.
And this is so important because when institutional investors start buying a sector, they tend to keep buying it and buying it and buying it - for more than a year and sometimes several years.
The sector’s BPI tells you when they start buying, before it becomes obvious to everyone else.
Look at these 46 sectors on the bell curve. The ones in red were being sold by institutional investors. They may still have been going up in price but institutions are selling out.
So we want to buy into sectors that have institutions buying alongside us. The ones in green.
When we are buying stocks that are members of sectors that institutions are buying, we have the wind in our sails. We are swimming with the current.
Most of the trading in the stock market happens automatically based on computer programs.
So if the institutional investor’s software program is set to buy stocks in the Building sector or the Gaming sector, the sectors you see all the way to the right, then the program will automatically buy a bunch of stocks in those groups without considering the fundamentals of the stock themselves.
I want to be a buyer of stocks that are being bought automatically by these algorithmic software programs that institutional investors have.
Remember, I am an institutional investor myself and I tend to trade tens of millions of dollars in equities or even hundreds of millions of dollars.
So when a whole bunch of institutions like me are buying a sector, individual investors, like you, can pretty much jump on board and let us push the prices up for the next year or two.
And… that brings us to Step #3. Even acting just with steps #1 and #2, you’re in good shape. But step #3 is the icing on the cake.
So, we’re going to sort of layer this strategy on top of the last one…
Founder, True Market Insiders