One thing that a lot of investors overlook is the importance of a stock's volume in confirming its stock price move. When I look for short-term trends in an individual stock, the first place I start is a list of stocks that have recently seen a surge in volume. A good place to look for this is at Barchart.com where they show volume advances. The term volume advances simply means how much more volume a stock has over the previous days volume. Schaeffer's also has a nice stock screen that shows stocks that have gained over 5% in the past week and also have had more than double their average volume in the past two weeks.
I look for stocks that have strong price action and strong volume at the same time. Stocks that hit a new 52 week high on very strong volume are generally terrific buys for a nice short-term pop. As an example I would like to show a chart of Las Vegas Sands Corporation (NYSE:LVS)
The volume trends work the same way when spotting a stock that is in a downtrend. When a stock breaks to the downside on huge volume, it will likely continue to lag the market for a period of time.
Volume is extremely important determinant in the true conviction behind a stocks move. Using the stockcharts.com charts is a great way to gauge the conviction behind a move.
As those of you who are subscribed to the RSS Feed would likely know, I am generally a long-term investor. Long-term investors can also benefit from watching the volume in their holdings. Volume trends can be great for long-term investors when trying to find a spot to sell one of their current holdings. I like to sell my holdings that have done well when they hit new highs on light volume, and let them run when they are hitting new highs on stronger volume.
Whether you are like me and you generally invest for the long run and simply dabble in some short-term trades, or if you are a short-term trend trader who doesn't like to hold stocks for long, using volume trends is a great way to look for stock ideas.
As you tend to be, I am a long term investor as well and rarely view stock volume. A big reason for this is that I hold nig blue chip stocks that tend to have huge volume. In terms of my investment style, I would never make a decision based on volume. That does not mean that it is wrong, it is just the way I invest.
Jeremy
Posted by: The Dividend Guy | September 13, 2007 9:20 PM | Permalink to Comment