How Do You Tell When Institutions Are Buying Stock

I had another reader question today which was how do you tell when institutions are buying stock? This is a great question and really touches on the heart of the CANSLIM strategy which is institutional sponsorship. Without it, it's hard to get the stock price to go up. With it, you can find some real winners.

The first way to spot institutions buying stocks in specific companies is by watching the price and volume action on a chart for that particular stock. If the price is increasing on higher volume, that might be a good indicator. Especially if it's on a substantial increases in price and volume otherwise known as a "break out". The best place to find this information is by reviewing the Stocks on the Move screen each day and on a weekly basis.

You can also look for the monthly screen in the IBD called Top Mutual Fund Buys which appears sometime in the first week of each month. This information has a lag time though from when it actually happens to when we get it which I think should be more transparent. I don't see why they get to hide their buys. I guess it's more likely they are more concerned about hiding their selling so you don't know until they are completely out. But it is still useful because institutions sometimes take a few months to complete their buys.

You can also check the top performing mutual funds feature each day. You'll discover what stock they are buying now by looking at the details provided their. You'll also find it in a few other screens from time to time.

Those are the major ways to spot it though. In particular the price and volume gives them away. Knowing they are getting in is a good sign and institutional sponsorship is key to a stock's rise in price.

Good luck with your stock market investing.