Investor rotation

Aside from the sector rotation and the geographical rotation, there is also a rotation in terms of client type. If you look at the chart below, you can see that Institutional investors are selling, while Retail and corporate investors keep buying this market. Companies are buying back their stock, arguably at very high valuations, to create a supply squeeze. Retail investors are drinking the cool aid, and continue to ride this market that keeps hitting all time highs. But institutional investors, the ones that create long lasting trends, are abandoning the ship, de-risking their portfolios perhaps in anticipation of a correction, which in a way is a good sign because they will act as liquidity providers when the downward move actually happens. As we stand today, sophisticated investors, the ones that arguably have good information, are selling, creating an air pocket that is being filled with buybacks and small investors, with clearly different motivations and levels of information. If that wasn’t clear enough, insiders are pairing with institutionals, selling their own stock while voting on the boards to buy back more. Well informed investors out, poorly informed ones, in. Not a good sign.

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