What Does "Institutional Buying" Mean? Why Might a Stock Drop Despite Institutional Buying?

"Institutional buying" refers to large-scale stock purchases by institutional investors. Typically, this involves single transactions exceeding 500,000 shares or ¥1 million, accounting for at least 0.1% of the float. Conversely, "institutional selling" indicates large-scale sell-offs by institutions. Institutional buying suggests strong bullish sentiment from major funds, often attracting retail investors to follow suit and drive the stock price higher. Thus, it is generally a positive signal. However, market conditions may still cause the price to drop despite institutional buying.

If institutions buy to artificially inflate the price (e.g., to facilitate a sell-off the next day), this is bearish. For example, during a downtrend, institutions might anticipate further declines and buy shares near the market close to prop up the price, luring retail investors before dumping their holdings. After the sell-off, the price may plummet or even hit the daily limit-down.

If institutional buying is part of a fundraising operation (e.g., ahead of positive news), the price rise is genuine. This often occurs when institutions anticipate a major bullish announcement and accumulate shares preemptively.

Institutional capital can influence or even manipulate short-term market trends. Large institutions analyze macroeconomic and microeconomic factors, including policy shifts and emerging trends. Retail investors who track institutional activity and act decisively may outperform the market.

Why Might a Stock Drop Despite Institutional Buying?

Institutions aim to profit. They may suppress prices to accumulate shares ("accumulation phase"), then rally the price to sell high ("distribution phase"). If the price rises too quickly during accumulation, profit margins shrink. Large buy orders failing to lift the price may indicate:

1. Fake Buying, Real Selling: Institutions place large buy orders to create bullish illusions while quietly selling smaller lots. Net selling pressure drives the price down.

2. Data Misinterpretation: Trading software inflow/outflow data is approximate. For example, a large canceled buy order may still be counted as inflow.

3. Pump-and-Dump at Lows: Large buy orders at low prices may signal manipulation—institutions hype the stock on "good news" before dumping shares, causing a post-sell-off decline.