Institutions Laugh, Small Investors Lose Again

The stock market is taking a beating today as money runs for the exits. The SPDR S&P 500 ETF Trust (SPY) is trading at $161.51, -2.05 (-1.26%). The signals were there as the big institutions unloaded. Most average investors missed the signals because they are not educated in market related analysis. I will explain it all and show how you knew this sell off was coming. It is ridiculously easy.

The signal occurred exactly three weeks ago today. On Wednesday, May 22nd, 2013 the markets surged higher in early morning trading. By mid-morning, a major reversal had started. The markets went from being up over 1% on the day to being down over 1% on the day.

The reversal by itself does not tell us a major turn has hit the stock market. The key was the volume. On that day, the SPY traded 250 million shares, the biggest volume day in all of 2013. To give you a sense, the average volume on the SPY is 125 million. In other words, we saw double the volume on a major reversal day, coming at the all time highs on the market. Checkmate!

Anytime you see these signals, it is very logical to move out of all long positions and start going short the market. The volume signals institutional dumping in excess. In the big boys are dumping, you would be wise to sell as well. Most average investors continue to buy the dip, thinking the markets will go up every day. They are taking a beating as every bounce is now a selling opportunity.

So many investors fall on the wrong side of the market. They are duped by the media and institutions. In fact just before this market dip, David Tepper emerged, calling for another major move up in stocks. In addition, days later Goldman Sachs Group, Inc. (GS) upgraded their price targets on the S&P 500. It is sad because small investors buy when these widely 'trusted' players say buy. When these calls emerged, I alerted investors to sell into it as that is likely what those two big players were doing it. We shorted the market. Profits are flowing.

Related: SPDR Dow Jones Industrial Average ETF (DIA), PowerShares QQQ Trust, Series 1 (ETF) (QQQ).