How Can I Tell When Big Money Is Buying Into Stock?

The key to making money in stock market investing today according to William O'Neil is by buying stocks that institutional buyers like mutual funds are buying. But, how can you tell when the big money is buying a particular stock? The answer is by analyzing the price and volume action of the stock on a daily basis. What you'll find is that when a the big money is flowing into a stock, the price of the stock will move higher on volume that is higher than the day before. Conversely, if you want to know when the big money is flowing out of a stock, you need to spot the price falling on higher volume than the previous day.

The real question is: why does this matter?

The reason is that when institutions start buying a certain stock, it drives the price up because the stock is in greater demand. If you can spot this demand when it first starts occuring, you can ride the stock up in price until they decide to get out. This is also the time that the media announces what a great buy it is. By "advertising" the stock in this manner, it helps attract buyers that the big guys need desperately. Without them, they'll drive the stock price down too fast.

You'll notice this on a smaller scale in penny stocks. If you have ever received a flyer or email promoting a stock, it's the same philosophy at work.

Buy stocks with strong earnings and strong institutional sponsorships and you'll be much better off than you were before.