We often discuss the NYA Index because that is where the big Institutional Investors do most of their trading due to the volume of their transactions.
But, my favorite index measurement goes to the heart of what Institutional Investors are really doing. For those who know about Pareto's Principle, it makes a lot of sense. (For those unfamiliar with Pareto's Principle, here is an explanatory link: http://en.wikipedia.org/wiki/Pareto_principle)
Pareto's Principle therefore suggests that 20% of Institutional stock holdings would represent 80% of their invested dollars. (The actual percentages are closer to 30% and 70% right now.)
Since Institutional Investors represent over 50% of any given day's trading volume, they are a key controlling element in the stock market. It never pays to go against what Institutional Investors are doing. If they are selling and you are buying or holding, you will get hurt. If they are buying and you are selling, you will miss a rally.
So, that is why we monitor the top investments held by Institutional Investors.
Because it is not really an index like the S&P or the Dow, it can't be manipulated of played with. You can't invest in it, there is no ETF for it, and there are no options for it.
It changes according to how Institutional Investors redistribute their assets among different stocks during different market cycles. From a technical analysis standpoint, it behaves the way indexes used to decades ago without the hedging and stop running that often goes on. In fact, the top of the recent Bull Market was signaled after the Institutional "core holdings" index hit a perfect 61.8% Fibonacci Retracement.
For our paid subscribers, today's update will not be anything new, since they see an update of our Institutional data every morning. So, today's Institutional Index update is a courtesy update for our visiting free members.
Below is a 2005-2009 chart of the Institutional "core holdings". The data for 2009 clearly shows how the index bottomed and has been having a nice rally ... just like the other indexes.
What is going on now, is what is important.
If you take a moment to look at the lower left hand corner of the chart, you will see a close up of the current rally's movement.
If you look closely, you will see a light blue support line for this rally. It has 5 touch points, points where the index held and then proceeded to move higher from there. None of the touch points violated the support line ... except for the current one which briefly slipped below the support line and then rebounded last Friday by closing slightly above it.
Here is what it means: It means that the brief support line breach is a caution notice for investors. It means that the Institutional Index is once again "testing the rally's support line".
It also means that the current rally did not signal a new Bull Market yet. Why? Because the current rally's up move has not yet made a "higher/high" over the previous high ... so technically, this is still part of a longer term down trend.
What is important now, is for the Institutional Index to hold its current support line. If it doesn't, that would open up the possibility for the index to move into a correction modality, taking the other indexes down with it.
