The Importance of Institutional Cash Flow and Industry Momentum

Many of those who know my investing style already know I am not a big fan of "buy and hold". What I do support is the concept of "buy and be patient". Wait for the economic indicators to help determine the most appropriate time to exit a stock. One primary reasons for this is the fast cycle in which the market moves. Institutional money is constantly rotating from sector to sector and thus beating the institutes to the punch can be very profitable. Your money is much better suited in a mediocre stock in a strong sector, then a good stock in a weak sector.

With all this said, you can imagine how much importance I put on sector analysis and the flow of institutional money. Institutional money makes up over 70% of the market and is almost always the force needed to push stocks through resistance levels. So where is the institutional money headed now? What sectors are heating up and where should your money be?

One of the most notiable sectors that has been heating up lately has been machinery/manufacturing/industrial (.MIU). This sector has faired well over the last couple weeks as institutional money continues to slowly push the sector higher. The one stock that I own from this area is Microchip Technology (MCHP).

The solid fundamentals of the company with its favorable price patter and industry momentum made this my top pick in the group. I waited for a pull back and for the MACD and FULL STO to setup last week. When that happened, it seemed like the perfect spot to enter and thus I got in at $35.25. The stock has seen some resistance around the $37 tick. This is where I believe that the continued institutional cash flow will push the stock to break through this resistance level. We will see if this coming week is the week it breaks that resistance ceiling and moves closer to my target price of 40.

Other groups that are heating up include: Computer/components (.DCO), Basic/steel-iron/major integrated (.SMI), Machinery/pollution control (.POL), Chemicals/agricultural (.CAG) and Electronics (.ELE).