MIPS members who have been with us for a while know that I call large "Institutional Investors" the "Fat Kats" and/or the "Big Guys". Institutional investors include giant financial companies like Goldman Sachs, Morgan Stanley, BlackRock, State Street Global, PIMCO, etc.
How big are the Big Guys? Well there are less than 2000 Fat Kats in the US markets, but they "control" over 65% of the shares on the New York stock exchange (and most of this is controlled by the top 100). "Little Guys", like you and me and other "multi-millionaires" (haha) from all over the world that own stocks in the US markets (200 million of us), only control 35%. So, when the Fat Kats decide to get in or out of the market many of them often do so at the same time; and hence, their high volumes "move the markets". Us 200 million Little Guys, on the other hand, are not trading all day, every day like the Big Guys. This is because us Little Guys have other things to do than to "trade" - lawyers are in court, surgeons are removing someone's gizzards, engineers are launching missiles, etc. And even if a large number of us Little Guys would trade on the same day, we do not own enough shares to significantly "move the entire market".
Therefore, the Fat Kats leave a "footprint" (their daily volume). When the market goes up on high volume, we know who bought; and when the market tanks on high volume, we know who sold. They may as well send out emails saying "The Big Guys are buying" and/or "The Big Guys are selling".
For this reason, we at MIPS "adjust" the market data depending on volume. We call this Volume Adjusted Data (or VAD). Therefore, on high volume a 1% gain in the market (like in the S&P 500) may be looked upon within MIPS as a 1.5-2.0% gain; and vice versa on low volume. BTW, for the above reason, the Fat Kats wish that the total daily market volume was not published (they can't hide).
This brings us to the purpose of this Blog.
The Title is... Where and Why are the "Big Guys" Hiding?
Before we answer that, we need to explain how we know that the Big Guys are hiding and then explain why that is important.
The market has had a remarkable run to the upside since the Presidential election on Nov 11, 2017. That run was on relatively high volume. Then, the market took a break and meandered down a little until Friday, April 21st.
Now, see the relatively weak up-trend since Monday, April 24th in the graph below (blue lines).
This is NOT a good sign, because:
(a) the new up-trend is weak,
(b) the trading range is very narrow,
(c) the volatility is almost non-existent (meaning very little involvement from Fat Kats, and
(d) worst of all, the volume has tapered off to about 1/2 of its prior level, as of today (May 11th).
The conclusion from above is that, since the volume has basically collapsed, the Big Guys are "Hiding" on the sidelines. When markets experience very tight trading patterns on basically dried-up volume, the next move usually happens fast and moves even faster. Believe me, the Fat Kats have not packed up and gone away. The Bulls are sitting around ready to buy-in big-time at the first sign of good news; and the Bears have their fingers on the sell button, ready to sell on the first sign of bad news. In other words, the Fats Kats are playing it safe.
As you might expect, MIPS is still Long and all signs see it staying that way as long as the trend stays to the upside ("Don't fight the trend"). But, of course, that can change in a few days. Stay tuned...
Paul Distefano, PhD
MIPS Timing Systems, LLC