Mutual funds, pensions plans and other institutional investors can move your stock’s share price big time when they buy or sell. By knowing how they think, though, nimble small investors may be able to keep a step ahead of them.

Because institutional players hold huge positions, they can’t turn on a dime. It takes them days and sometimes weeks to establish or unload a position in a stock.

Here’s why you may be able to predict their next move: Every year, Merrill Lynch, the nation’s largest stockbroker, surveys institutional money managers to find out what factors they use to decide which stocks to buy and sell.

Last week, Merrill reported the results of its latest survey, which included responses from more than 200 money managers. The results surprised me.

I’ve always thought of institutional money managers as conservative types who select stocks by analyzing financial statements and other fundamental factors. I assumed that they sought out rock-solid companies with enduring long-term growth prospects so that they could hold them for years.

Not so. While they do use traditional fundamental parameters to qualify candidates, it looks as though they rely on momentum factors to time their buy and sell decisions.

In fact, of the 26 analysis factors tabulated, earnings surprise, which comes right out of the momentum investors’ toolbox, was No. 1.

Momentum investors believe that earnings growth expectations determine the direction of stock prices. Analysts’ earnings forecasts define the market’s growth expectations for a stock. In fact, a firm’s stock price usually moves up when analysts increase their forecasts and down when they cut them.

Momentum investors focus their analysis on factors that, in their view, predict the direction of earnings forecasts. They buy stocks likely to enjoy higher earnings forecasts over the next few weeks. Then they dump these stocks at the first hint that the trend might reverse.

Momentum money managers are not buy-and-hold investors. They measure holding times in terms of weeks and months, not years.

Earnings surprises, which topped the favorites list, compare a firm’s reported earnings with analysts’ forecasts. A positive surprise means that reported earnings were higher than forecasts, and a negative surprise says they fell short.

Usually, positive surprises higher than 2 cents per share move stock prices up. Conversely, any negative surprise, even a penny, can sink the share price. Further, positive surprises encourage analysts to raise future earnings forecasts, which amplifies the effect. It’s the same thing in reverse for negative surprises.

Momentum investors believe that you don’t usually get just one earnings surprise. A positive surprise will probably lead to future positive surprises and vice versa.

In addition to earnings surprises, two other momentum players’ favorites are earnings forecast trends and earnings growth momentum.

As soon as one analyst raises his or her earnings forecast, other analysts covering the stock fire raise their spreadsheets to see if they’ve missed something. Often, they decide they have, so they up their forecasts.

Thus, the first upward revision usually isn’t the last. Momentum investors believe that recent earnings forecasts revisions signal more to come and that the stock price will follow the revision trend.

The third momentum factor — earnings growth momentum — compares the most recent quarter’s earnings growth with longer trends.

For example, say a company has historically increased earnings at a 15 percent annual clip. It has positive earnings momentum if its most recent quarter’s growth rate has accelerated to 20 percent. Momentum investors view that as a signal that earnings growth will continue to accelerate.

Here’s how to find these three momentum indicators on the Web.

You can see a stock’s earnings surprise history and earnings forecast trends on most major financial sites. For instance, on Yahoo (www.finance.yahoo.com ), get a price quote, then select Analyst Estimates in the Analyst Coverage menu.

Reuters’ Ratios report is the best place to gauge earnings momentum of stocks. From Reuters’ home page (www.investor.reuters.com ), get a price quote of a stock that you might be interested in, then select Ratios in the Finances menu.

Scroll down to the Growth Rates section to see both the sales and earnings growth rates for the last quarter, the last four quarters, the prior 12 months and the past five years.

Four of the remaining top eight indicators measure fundamentals and are probably used to qualify candidates:

— Price/book ratio

— Price/cash flow ratio

— Return on equity

— Debt/equity ratio

Price/book and price/cash flow are valuation ratios that Merrill’s money managers presumably applied to avoid overpriced stocks. For instance, they probably ruled out stocks with price/book ratios around 10 and price/cash flow ratios greater than 40 or so.

Return on equity is a profitability gauge. Most money managers I’ve talked to avoid stocks with returns below 15, and higher is better.

Debt/equity ratios measure a firm’s debt level. Because what’s acceptable varies with the industry, money managers often compare a company’s debt ratios with the industry it’s in. They avoid stocks with ratios above their industry average.

You can see all of the information you need to evaluate these four factors on Reuters’ Ratio report.

Finally, a valuation gauge that compares a stock’s price/earnings ratio with forecast growth was included among the top eight factors. Yahoo lists this at the bottom of its Analyst Estimate report. Usually stocks with price/earnings/growth ratios below 1 are considered undervalued, and those with ratios above 2 are overvalued.

Whether you agree or disagree with institutional money managers’ methods, knowing how they think should help you predict which way your stocks are likely to move next.