Major Market Players Taking Opposite Sides
Published September 11th, 2007 in Trading Tags: bond markets, Commitment of Traders, COT, equity allocation, fund flows, futures contracts, insider activity, institutional investor, market timers, mark hulbert, newsletters, retail investor.The two major groups in the stock market have been and will always continue to be large, well capitalized and well informed “insiders”; and the small, underfunded, emotional, ignorant retail investors and traders.
These two groups engage in a financial dance which invariably concludes in the long term with one group enriching the second. Although they usually don’t take such contrasting positions, at times they can mirror each other.
A good example was in 2000 at the top of the internet bubble. The knowledgeable, “insider” team made up of hedge funds, investment banks, other Wall St. operators and the private equity team sold bits of paper (shares) in exchange for money from the retail crowd.
Right now we are seeing another one of those times. But this time it is the “insider” team that is on a buying spree.
Commitment of Traders
I’ve already mentioned that the commercials were crazy long equity futures contracts and although some time has passed things have not changed. The commercials are long about $38 billion worth of contracts while the small speculators are long their smallest amount since the bottom of the bear market.
Fund flows
According to fund flows data estimates, as the retail investor is fleeing the equity markets and seeking the sanctuary of bond markets and money market funds, the institutional investor is buying with the same intensity. Watch video about half way on the link.
Insider Activity
Corporate executives and other insiders are probably the most knowledgeable about a company’s future and while the market has taken a tumble, they haven’t been spooked. On the contrary, their buying here is only equaled to that seen at the bottom of the bear market. This in contrast to the retail investor who has been buying anything but US equities.
Newsletter Market Timers
The best market timers among the newsletters are wildly bullish, with an equity allocation of 92%. Meanwhile the worst are out of the market completely with a 0% allocation.
Credit: Mark Hulbert in Barron’s
bond markets, Commitment of Traders, COT, equity allocation, fund flows, futures contracts, insider activity, institutional investor, market timers, mark hulbert, newsletters, retail investor
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This information is certainly bullish for the market since the retail investor is very often way behind the curve when it comes to buying stocks. I’ll listen to what the insiders are doing anyday over the retail investors.
“The two major groups in the stock market have been and will always continue to be large, well capitalized and well informed “insiders”; and the small, underfunded, emotional, ignorant retail investors and traders.
These two groups engage in a financial dance which invariably concludes in the long term with one group enriching the second. ”
Babak, do you really believe that the “small, underfunded, emotional, ignorant retail investors ” have the funds to enrich the instiutional trading machines? IMO the retail investors are not even planktons to feed the big fishes out there.
Aaron, there have been times when the retail investors have been right but they are very few and far between. I’d rather join you and the insiders too.
Markus, the sheer number of them and the amount of money they wield is staggering. Yes, I do believe the plankton analogy is correct, although a very cartoonish simplification of things.