How to Profit From “Whale Spotting”

“How can you know it really works?”

I get that question a lot…

I created a system for picking stocks – my machines scour over 6,500 U.S. stocks every day, ranking each one for its technical and fundamental strength.

But the secret sauce is all about “spotting the whales.”

You see, after spending a decade and a half on Wall Street, I learned a thing or two.

And one of the most valuable lessons was that when “Big Money” needs to move in and out of stocks, it’s different than when you or I do it on our mobile brokerage apps.

The biggest investors take days, even weeks, to build or dissolve a position… And they try to keep their trades as quiet as possible – because once everyone knows, they can take advantage of the situation.

I know this because it was my job to do these trades for big investors for years.

And after I struck out on my own, I devised an algorithm to find exactly that kind of big buying and selling behavior.

Why? When big investors are buying the best quality stocks, it leads to big wins in the long term.

And today, I’m going to show you exactly how it works.

Volume Doesn’t Tell the Whole Story

Elon Musk recently purchased a 9.2% stake in social media giant Twitter (TWTR). When the news broke on April 4, the stock rocketed 27%.

Volume exploded as retail investors bought on the news and bearish short-sellers scrambled to cover their bad bets.

This is what the stock chart looked like along with volumes:

A monster spike in volume happened after the announcement. But looking at volume in the weeks prior – when Musk was building his stake – it’s not clear he was buying.

Ironically, the same week, another billionaire broke similar news: Warren Buffett announced an 11% stake in Hewlett Packard (HPQ).

The chart looks similar to Elon Musk’s Twitter buying. Only this time, you can see one big volume spike:

Yet few would make the leap that one big volume spike was a whale-like Warren Buffett buying a huge amount of stock.

That’s where my system shows its real value…

Whale Watching

Imagine a way to see whales moving in and out of the market.

That’s where my system comes in. In my years doing these types of trades as my day job, I made observations about volume relationships.

I figured out thresholds where we could see the big buyers or sellers trying to stay out of sight. (They do a great job hiding it, but I know better: I know what to look for.)

So I wrote algorithms that scan stocks, looking for monster trades like this. Believe it or not, big moves like these are rare on an absolute basis. They only happen for a few hundred stocks per day out of thousands.

Yet I look for each of those “violations” of stock volume and volatility relationships. The math isn’t so important. What is important is what it looks like.

Let’s look again at the Elon Musk buying chart – only now, I’m turning on the view from my system:

There he is! The orange shows which days had volume patterns indicating unusual institutional level trading going on – trading that can’t be seen in the volume bars.

This is what it looks like when a whale is buying – before the news breaks.

We can see multiple periods when Musk was buying before the headlines at the beginning of this month.

Now let’s look at Warren Buffett trying to stay quiet in HPQ:

Here too, my system spotted multiple periods of unusual institutional buying… before anyone in the news was talking about it.

Now it’s important to tell you that these aren’t endorsements to buy these stocks right now. I do a lot of additional analysis and research on top of spotting these movements. These are merely examples that show my process really does work.

My Outlier Investor system gives my readers an advantage – because it’s virtually impossible for anyone to see these whale moves beforehand on their own.

But my system gives us a clear heads-up…

Of course, the question most people will wonder is… How can this make us money?

Long-Term Big Wins

Earlier, I said when big investors buy the best-quality stocks, it leads to long-term big wins.

And our Outlier Investor portfolio has the perfect example of that principle.

Here is a chart of the Trade Desk (TTD) from 2017 to 2018.

After seeing Big Money snapping up the stock, I recommended readers buy it at a split-adjusted $8.95.

You may say to yourself: That’s too late – the big move already happened!

And you’d be right for the short term.

But let me show you what happened after that buy recommendation… as the whales kept piling in:

TTD went on to peak gains of 1,147% in just three years – or roughly 382% per year.

Missing out on that beginning move doesn’t seem so important now when viewed with a long-term mindset.

Here’s the thing… I used the same process to show you Elon and Warren’s buying above.

In the case of TTD, I never found out who the whale was. In fact, I often don’t.

But it doesn’t really matter in the end: I’m only interested in the final result.

While it’s fun to say, “I got in before news came out that Elon bought Twitter,” it’s even better to profit from opportunities like TTD.

This is the power of following the biggest investors before they tell you what they did.

Talk soon,

Jason Bodner
Editor, Outlier Investor

P.S. Following big buying in the best stocks is what Outlier Investor is all about.

It’s what led me to impressive gains on TTD… as well as three other triple-digit gains currently in our portfolio…

If you’re interested in finding out more, please go right here for more details on how it works.

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