Saturday, August 20, 2011

Double Edged Sword

Good evening all. As traders, one of our main jobs is to look where the big money is flowing, and hop along for a ride. So stock which is heavily owned by institutions could prove very very technically healthy and extremely profitable from the long side. However, I believe that in bearish and scary market conditions, finding stocks that are heavily owned by institutions can be even more profitable, as their forced liquidation, and mass exodus to avoid risk trades, could heavily heavily destroy stock prices. Hence the title of this post, seeing as a heavily institutionally owned issue could provide serious price movements, both up and even more so down. As we all know, when people are buying, they take time to calculate, plan,scale in over time. But when there is massive fear, they cannot leave fast enough, especially when a huge loss of money is possible of said institutions. So when they are forced to liquidate, by clients, margin calls,belief,strategy,fear, or all of them, prices tank faster than you can say "sell!!!). I also believe that companies with a high debt/equity ratio could face some extremely unprofitable times in rough economic times, leading the big whale/value investors, to sell out. Therefore, I developed a new thesis which incorporates a fundamental, yet nontraditional idea into my scanning for this week and the next few weeks, possibly. However, as I am primarily a devout technical analyst, my primary intentions are to find stocks that are in their late distribution/early decline on the daily timeframe, and mid to late distribution on the weekly timeframe, as I do not want to miss the meat of the move and show up late for the party. The other two conditions incorporated in my scanning formulas are : Institutional ownership of 85% or greater and debt/equity greater than 1. Here are just four of the results that came up, out of the many, ripe to short the shit out of:

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