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Harnessing Institutional Volume Accumulation (3 Stocks to Watch Now)
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A mentor of mine once passed down some simple yet profound advice. That is, “Pay close to institutional accumulation. Institutions are the main driver behind stock moves, not retail investors.”
Institutional investors are worth watching because they have the largest sums of money to invest in the financial markets on behalf of their clients. Large retail investors may trade 100,000 shares whereas pension funds, hedge funds, sovereign wealth funds, and endowment funds typically trade millions of shares. Institutional investors enjoy advantages such as extensive research teams, top-of-the-line software, and access to more information. Conversely, their disadvantages are essential to understand because they can be advantages for retail investors.
Lack of Flexibility: A large institutional investor may take several months or even years to accumulate shares as they must have enough liquidity and cannot drive prices higher. Meanwhile, retail investors can get in and out of positions as they desire because they do not require the same amount of liquidity (aka volume).
Over-Diversification: Institutions often have restrictive mandates, such as the number of stocks that the portfolio must own. The more spread thin a portfolio is, the more difficult it is to outperform the market. Again, retail investors have an advantage here as they can get as concentrated as they feel comfortable with.
Risk Mitigation: If a trade goes against an institution, they are often forced to add on weakness and try to manage their way out of a trade. Meanwhile, if a retail investor feels uncomfortable on a trade, they can exit.
Use Institutions to Your Advantage
One of the best ways to generate alpha and outperform the market is to learn to recognize institutional accumulation. Though you are not in-house at a top-tier firm, you can recognize that “elephants are jumping into the bathtub” (aka institutional accumulation is occurring in a stock) and indirectly leverage their extensive research and intel. Furthermore, because you can size up to a full position quicker, you can potentially benefit for months as an institution or institutions accumulate shares. Below are 3 stocks experiencing institutional accumulation:
Palantir ((PLTR - Free Report) ) is a data analytics company that operates in the AI realm, specializing in software platforms for data integration, analysis, and visualization. Its core products, such as Palantir Gotham and Palantir Foundry, are used by government agencies, financial institutions, and other enterprises for complex data analysis. Though much of Palantir’s products are top secret, what’s known to the public is that their technologies enable users to make data-driven decisions by uncovering patterns, relationships, and insights within large and diverse data sets.
Earnings Report Crushes Expectations
Last night, Palantir delivered exceptional quarterly earnings, which doubled year-over-year. On the conference call, CEO Alex Karp was extremely bullish about the company’s future, saying, “Our commercial business is exploding in a way we don’t know how to handle. We don’t know what to do with the onslaught of demand.”
Tuesday, the stock exploded by more than 30% as volume swelled to 420 million shares. The volume was an all-time high for the stock (yes, even higher than the IPO day)!
Image Source: TradeStation
The robust price and volume action is a signature of intuitional accumulation. Though investors may feel they missed the boat, the stock is just now breaking out above last year’s highs. Furthermore, the robust volume accumulation that took place today typically reverberates for weeks and results in “post-earnings drift.”
Carvana ((CVNA - Free Report) ) is an online automotive retail platform that simplifies the process of buying and selling cars. Operating entirely online, Carvana enables customers to browse a vast inventory of used cars, complete purchases, and arrange for home delivery or pickup from one of their automated car vending machines.
Recovering from “Baby with the Bathwater”
In late 2022, Carvana was on the brink of collapse as investors sold shares with reckless abandon as interest rates spiked, and used car prices plummeted. However, CVNA beat the odds by securing emergency funding and cutting expenses. Since then, shares have recovered from $4 a share to near $48 today. After a multi-week retreat, buyers stepped in Tuesday. The stock retook the 50-day moving average with authority as volume spiked to its highest levels since late December. Shares are in play as long as the stock can hold the 50-day moving average,.
Image Source: TradingView
MercadoLibre ((MELI - Free Report) ) is the Latin American equivalent of e-commerce giant Amazon ((AMZN - Free Report) ). “Skyscrapers” of institutional accumulation have been appearing on the weekly chart for months now, and for good reason.
Image Source: TradingView
Last quarter, quarterly earnings grew at a robust 180% year-over-year. The company also scored an impressive win – MercadoLibre overtook Amazon’s share of retail e-commerce sales for the first time. Considering Amazon’s dominance in the e-commerce space, the feat is no easy one.
Bottom Line
It’s difficult to overemphasize the importance of paying attention to institutional accumulation in the stock market. Institutions drive significant stock movements.
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Harnessing Institutional Volume Accumulation (3 Stocks to Watch Now)
A mentor of mine once passed down some simple yet profound advice. That is, “Pay close to institutional accumulation. Institutions are the main driver behind stock moves, not retail investors.”
Institutional investors are worth watching because they have the largest sums of money to invest in the financial markets on behalf of their clients. Large retail investors may trade 100,000 shares whereas pension funds, hedge funds, sovereign wealth funds, and endowment funds typically trade millions of shares. Institutional investors enjoy advantages such as extensive research teams, top-of-the-line software, and access to more information. Conversely, their disadvantages are essential to understand because they can be advantages for retail investors.
Lack of Flexibility: A large institutional investor may take several months or even years to accumulate shares as they must have enough liquidity and cannot drive prices higher. Meanwhile, retail investors can get in and out of positions as they desire because they do not require the same amount of liquidity (aka volume).
Over-Diversification: Institutions often have restrictive mandates, such as the number of stocks that the portfolio must own. The more spread thin a portfolio is, the more difficult it is to outperform the market. Again, retail investors have an advantage here as they can get as concentrated as they feel comfortable with.
Risk Mitigation: If a trade goes against an institution, they are often forced to add on weakness and try to manage their way out of a trade. Meanwhile, if a retail investor feels uncomfortable on a trade, they can exit.
Use Institutions to Your Advantage
One of the best ways to generate alpha and outperform the market is to learn to recognize institutional accumulation. Though you are not in-house at a top-tier firm, you can recognize that “elephants are jumping into the bathtub” (aka institutional accumulation is occurring in a stock) and indirectly leverage their extensive research and intel. Furthermore, because you can size up to a full position quicker, you can potentially benefit for months as an institution or institutions accumulate shares. Below are 3 stocks experiencing institutional accumulation:
Palantir ((PLTR - Free Report) ) is a data analytics company that operates in the AI realm, specializing in software platforms for data integration, analysis, and visualization. Its core products, such as Palantir Gotham and Palantir Foundry, are used by government agencies, financial institutions, and other enterprises for complex data analysis. Though much of Palantir’s products are top secret, what’s known to the public is that their technologies enable users to make data-driven decisions by uncovering patterns, relationships, and insights within large and diverse data sets.
Earnings Report Crushes Expectations
Last night, Palantir delivered exceptional quarterly earnings, which doubled year-over-year. On the conference call, CEO Alex Karp was extremely bullish about the company’s future, saying, “Our commercial business is exploding in a way we don’t know how to handle. We don’t know what to do with the onslaught of demand.”
Tuesday, the stock exploded by more than 30% as volume swelled to 420 million shares. The volume was an all-time high for the stock (yes, even higher than the IPO day)!
Image Source: TradeStation
The robust price and volume action is a signature of intuitional accumulation. Though investors may feel they missed the boat, the stock is just now breaking out above last year’s highs. Furthermore, the robust volume accumulation that took place today typically reverberates for weeks and results in “post-earnings drift.”
Carvana ((CVNA - Free Report) ) is an online automotive retail platform that simplifies the process of buying and selling cars. Operating entirely online, Carvana enables customers to browse a vast inventory of used cars, complete purchases, and arrange for home delivery or pickup from one of their automated car vending machines.
Recovering from “Baby with the Bathwater”
In late 2022, Carvana was on the brink of collapse as investors sold shares with reckless abandon as interest rates spiked, and used car prices plummeted. However, CVNA beat the odds by securing emergency funding and cutting expenses. Since then, shares have recovered from $4 a share to near $48 today. After a multi-week retreat, buyers stepped in Tuesday. The stock retook the 50-day moving average with authority as volume spiked to its highest levels since late December. Shares are in play as long as the stock can hold the 50-day moving average,.
Image Source: TradingView
MercadoLibre ((MELI - Free Report) ) is the Latin American equivalent of e-commerce giant Amazon ((AMZN - Free Report) ). “Skyscrapers” of institutional accumulation have been appearing on the weekly chart for months now, and for good reason.
Image Source: TradingView
Last quarter, quarterly earnings grew at a robust 180% year-over-year. The company also scored an impressive win – MercadoLibre overtook Amazon’s share of retail e-commerce sales for the first time. Considering Amazon’s dominance in the e-commerce space, the feat is no easy one.
Bottom Line
It’s difficult to overemphasize the importance of paying attention to institutional accumulation in the stock market. Institutions drive significant stock movements.