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Soultrader

Institutional Selling

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A week or two ago, MrPaul brought up an interesting chart comparing the major indices with the Insitutional Holdings Index. While the major indices were at new highs and a magnificent uptrend, the Insitutional Holdings Index showed a complete rangebound market. The original thread was posted on Feb. 17, 2007 here: http://www.traderslaboratory.com/forums/f38/overall-market-health-1214.html

 

attachment.php?attachmentid=902&stc=1&d=1172795870

 

This rangebound indicated that the insitutional funds were no longer buying. On top of this information, the major indices were showing high volume pullbacks with low volume rallies. A warning sign? Clearly. The charts were telling us that a potential top was in place with clear hints of a uptrend losing steam.

 

attachment.php?attachmentid=903&stc=1&d=1172796072

 

 

On Feb. 27, 2007 the Dow crashed 500pts along with the entire market. Now do we blame it on China and the Shanghai Index dropping 9% overnight? I dont think so. A smart trader/investor would of known what was to be expected. Alot of the traders in the trading chat room were fully aware of the potential top in place.

institutionalindex.jpg.74cdf12e346f9f499a5a6fb5fa0b3f1b.jpg

indicesmajor.thumb.jpg.b5b2541596d037da07699873cbd01f86.jpg

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If its not to much work, could we see an actual daily chart of the Institutional Holding Index ? I think I dont have it on esignal... would apreciate that, also is it posible to see a 5 min chart of the same compared to YM 5min.... thanks in advance.... Walter.

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What exactly does the Insitutional Holdings Index measure? It has a very grand sounding name but that counts for nothing unless it measures something worthwhile. It's the nature of institutional traders not to make their positions available to the general public so I'd be surprised if any meaningful information was available just by looking at this index.

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notouch: I would suggest you look at the very first post of this thread and evaluate for yourself if this index doesnt has a valuable information.... by the way found it on esignal symbol is : $XII thanks Soul for help. cheers Walter.

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Amex Institutional Index

The Amex Institutional Index (XII) is a capitalization weighted index of 75 stocks most widely held as equity investments among institutional equity portfolios. The index is designed to reflect the performance of core stock holdings of institutions. The XII Index was established with a base value of 250.00 as of June 24, 1986. (The index value was later split 2-for-1 on May 19, 1998.)

 

 

I understand you can see what bigbrother is doing... cheers Walter.

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The Amex Institutional Index is completely different from the Institutional Holdings Index. Both of them are sort of interesting but they don't really tell us what "big brother" is up to. Google, for example, is in the Institutional Holdings Index but is also very popular with retail investors. So if retail investors started dumping their Google stocks this would have a negative impact on the Institutional Holdings Index but the institutions could be buying what retail is selling. Also we don't know who these "institutions" are. They probably include pension and mutual funds who are usually classified as "dumb money". Trading syndicates on the other hand are not institutions even though they are definitely smart money.

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one of john carter's "thangs" is to watch MER (merrill lynch) and the brokerdealers (XBD) and the Banks (BKX) indexes to at least get somewhat of a hint of what institutions are doing.

 

i think this is a decent proxy. i do find that when BKX and XBD are diverging from the dow, one or the other will give. it's also a rare to see a real rally sustain itself without heavily green XBD and BKX and the opposite for a selloff.

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  notouch said:
The Amex Institutional Index is completely different from the Institutional Holdings Index. Both of them are sort of interesting but they don't really tell us what "big brother" is up to. Google, for example, is in the Institutional Holdings Index but is also very popular with retail investors. So if retail investors started dumping their Google stocks this would have a negative impact on the Institutional Holdings Index but the institutions could be buying what retail is selling. Also we don't know who these "institutions" are. They probably include pension and mutual funds who are usually classified as "dumb money". Trading syndicates on the other hand are not institutions even though they are definitely smart money.

 

 

XII.X is the symbol used in this thread, happens to be the Amex Institutional Index, how can we determine what is smart money can become a very subjective topic and beyond this thread spirit, the divergence shown before the 2/27 fall was clear... If its smart, dumb, idiot money I dont know... but its clear that the "institutional" sector was not bullish anymore on does dates previous to the fall.... I dont think this indexes are there for nothing, they have been built to be monitored, Notouch : If you dont believe in them, just dont use them... simple, like any other techniques been thought here, it is a little faith sometimes what puts you in action, being so pesimistic will keep you on a closed actitude too some things that can be of very good help...

cheers Walter.

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This may help clear things up. I originally mentioned the core holdings index after looking through a stocktiming.com report on China/the S&P/ and the core holdings index

 

Stock Timing - Daily Update

 

In hindsight they were spot on...

 

The point was divergence and non-accumulation, not so much this leads that etc.

 

Hope that helps :cool:

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Interesting article MrPaul but I think it contains a lot of flawed thinking. For a start it only contains one example. Obviously you'd need to see it repeated many times before drawing any conclusions. It also makes the mistake of thinking that just because one of these institutional indices are not going up this represents institutional selling but that isn't necessarily so. It just means some common stocks that are held by some institutions (as well as the general public) are underperforming compared to the S&P 500. I don't think you can jump to the conclusion from that that every time these institutional indices diverge from the S&P 500 then the market is about to crash.

 

That XII index contains all the DJIA stocks plus 45 others. For example while the DJIA only contains Coca-Cola, XII also contains Pepsi. I doubt it will prove as useful on a long-term basis as some here seem to be believe.

 

^XII: Components for AMEX INSTITUTIONAL INDEX - Yahoo! Finance

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Well, in this case it did crash... lol.:( notouch: you should take into acct that sometimes some concepts do not need a cientific backtesting... the core concept is there.... by no means one index will represent the entire institutional holdings, but there is an old saying in my country that says "para muestra basta un boton"... one example is enogh to know whats inside the entire box... that means that that index could be representing a lot more... example the dow index is build with just 30 stocks... but its says a lot and it speeks for the entire nyse... openes of mind can be very helpfull on the interpretation of this indexes... cheers Walter.

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I remember the postman delivered my mail early the day before the crash. Does this mean the market will crash every time the postman delivers my mail early? There's a saying in my country "hard cases make bad law". I think trying to draw conclusions based on things that happened before a freak 500 point crash is not going to help your trading.

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  notouch said:
I remember the postman delivered my mail early the day before the crash. Does this mean the market will crash every time the postman delivers my mail early? There's a saying in my country "hard cases make bad law". I think trying to draw conclusions based on things that happened before a freak 500 point crash is not going to help your trading.

 

You cant take one piece of information in the markets and conclude. In this case, the Insititutional Holdings Index showed a consolidation prior to the correction on Feb 27. You combine that with the lower volume rallies and higher volume selloffs on the index futures. This information would of showed clear warning signals for longer term and short term traders and would of helped any trader from establishing a long position if he was aware of this. I personally tried to short the markets and was looking into options a few days before the correction. Although I did not get in, I have a few friends in Tokyo who got hammered on that correction.

 

If the information provided does not make any sense to a trader, why bother using it? If it helps, I am sure the information will be of tremendous help to the trader. Traders make money by being aware and selling it to those who are less aware.

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Price and volume on the index futures and indices themselves gave us all the information we needed to know. I can't see how adding another 45 stocks to the DJIA is going to help us spot institutional selling.

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