💼 Retail vs. Institutional Participation in the Stock Market
Understanding this gives us signs of what's to come
Why Track Institutional vs. Retail Confidence?
It is critical that traders understand where inflows are coming from in the market. While retail traders certainly can move the market for some time, the bulk of the stock market’s movement stems from institutional investments.
Therefore if we understand participation rates for the two groups, we can put together an informed guess of what might be coming next in the stock market.
What is the Current Reading?
Looking at the chart above, you can see that stock market movement is typically correlated with smart money investment. In other words, as institutions increase their participation in the market, the stock market usually rises.
Additionally, retail and institutional participation usually move opposite each other - as one rises, the other falls, and vice versa.
Right now we are seeing something rare - both institutions and retail are buying.
Is this sustainable? Maybe, maybe not.
What Does This Reading Tell Us?
One thing we do know is that retail investment is reaching one of its highest levels over the past five years and institutions haven’t quite joined the party.
If they do, we could see a massive rise in the market, but if they don’t, a pullback from retail investors could mean the stock market will also pull back.
For a more in-depth analysis of the current reading of institutional vs. retail investors, watch this 2 minute clip below: