Reversal Coming? Sophisticated Investors Think These Rallies Are Running Out of Steam

For a look at what the markets are expected to do next, one of the best sources for insight is what sophisticated investors are doing.

Institutional investors, like managers of hedge funds and mutual funds, report what they’re buying on a regular basis, and this is helpful knowledge to other investors because institutions have access to sophisticated research and have a lot of experience in choosing investments.

Short sellers are also considered among the investing elite because of the stringent requirements in being allowed to sell securities short (due to the fact that the short selling process involves significant borrowing).

When a stock sees increased buying from institutional investors, it’s a bullish signal to take a second look. And when short sellers increase their positions in a stock, it’s a bearish signal on the stock’s outlook.

It’s particularly interesting to compare institutional buying and short selling trends to a stock’s recent performance.

We ran a screen on stocks rallying above their 20-day, 50-day, and 200-day moving averages for those with bearish signals from both institutional investors (who are net selling these stocks) and short sellers (who have increased their positions in these stocks).

Sophisticated investors think these stocks are going to run out of steam – what do you think?

Use this list as a starting point for your own analysis.

List sorted alphabetically.

1. Barnes & Noble, Inc. (BKS, Earnings, Analysts, Financials): Operates as a content, commerce, and technology company in the United States. The stock is trading 3.04% above its SMA20, 3.04% above its SMA50, and 3.04% above its SMA200. Net institutional sales in the current quarter at -4.3M shares, which represents about 15.27% of the company’s float of 28.16M shares. Shares shorted have increased from 6.95M to 7.38M over the last month, an increase which represents about 1.53% of the company’s float of 28.16M shares.

2. Cree Inc. (CREE, Earnings, Analysts, Financials): Develops and manufactures light emitting diode (LED) products, silicon carbide (SiC) and gallium nitride (GaN) material products, and power and radio frequency (RF) products. The stock is trading 1.28% above its SMA20, 1.28% above its SMA50, and 1.28% above its SMA200. Net institutional sales in the current quarter at -6.1M shares, which represents about 5.73% of the company’s float of 106.49M shares. Shares shorted have increased from 18.84M to 20.58M over the last month, an increase which represents about 1.63% of the company’s float of 106.49M shares.

3. Harbin Electric, Inc. (HRBN, Earnings, Analysts, Financials): Engages in the design, development, manufacture, supply, and service of electric motors in the People’s Republic of China and internationally. The stock is trading 7.35% above its SMA20, 17.33% above its SMA50, and 19.97% above its SMA200. Net institutional sales in the current quarter at -3.0M shares, which represents about 18.55% of the company’s float of 16.17M shares. Shares shorted have increased from 8.14M to 9.43M over the last month, an increase which represents about 7.98% of the company’s float of 16.17M shares.

4. 1st Source Corporation (SRCE, Earnings, Analysts, Financials): Operates as the holding company for 1st Source Bank that offers commercial and consumer banking services to individuals and businesses in Indiana and Michigan. The stock is trading 3.62% above its SMA20, 1.89% above its SMA50, and 8.86% above its SMA200. Net institutional sales in the current quarter at -1.6M shares, which represents about 27.54% of the company’s float of 5.81M shares. Shares shorted have increased from 470.44K to 542.64K over the last month, an increase which represents about 1.24% of the company’s float of 5.81M shares.

5. Tyler Technologies, Inc. (TYL, Earnings, Analysts, Financials): Provides integrated information management solutions and services for local governments in the United States, Canada, Puerto Rico, and the United Kingdom. The stock is trading 7.19% above its SMA20, 8.45% above its SMA50, and 12.66% above its SMA200. Net institutional sales in the current quarter at -910.2K shares, which represents about 3.05% of the company’s float of 29.88M shares. Shares shorted have increased from 2.60M to 2.95M over the last month, an increase which represents about 1.17% of the company’s float of 29.88M shares.

(Written by Alexander Crawford, list compiled by Eben Esterhuizen, CFA. Institutional data sourced from Fidelity, short data sourced from Yahoo! Finance, moving average data sourced from Finviz.)

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