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Use The Up/Down Volume Ratio To Find Top Stocks Under Accumulation

It’s often said that earnings growth is the main driver of a stock’s price performance. That’s true, but top stocks also benefit from institutional buying.




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When big investors such as mutual funds, banks and insurance companies start buying, big volume always gives them away. And big volume is the fuel for powerful upside moves.

IBD readers are familiar with the Accumulation/Distribution Rating, which measures institutional buying and selling in a stock over the past three months. Heavy-volume up days help the rating, while heavy-volume down days hurt it. Stocks are rated on an A+ to E scale. A+ means heavy institutional buying. E signifies heavy institutional selling.

The up/down volume ratio is another good way to find top stocks under accumulation. The ratio covers 50 days trading. Divide total volume on up days by total volume on down days to get the ratio. Target stocks with ratios above 1.0 at their breakouts.

The up/down volume ratio is available in the Technical Performance section of Stock Checkup at Investors.com. The ratio is also found in MarketSmith weekly charts and on Leaderboard charts.

Just like the A/D Rating, heavy-volume gains and low-volume declines will help the up-down volume ratio. But heavy-volume declines and low-volume gains will hurt the ratio.

Top Stocks: Strong Demand

The accompanying table shows several market leaders with strong up/down volume ratios.

West Pharmaceutical Services (WST), an IBD Long-Term Leader, cleared a 13-week consolidation in April. It rallied nicely from there and then flashed a series of tight weekly closes that yielded an add-on entry. Its up/down volume ratio was 1.6 the week of the breakout.

UPS (UPS) is also trading tightly near highs after the stock gapped up in late April on strong earnings. The up/down ratio was 1.2 the week of the April breakout that preceded the gap-up.

Pool (POOL), another IBD Long-Term Leader, is holding gains nicely after a breakout from a cup base in April, when the up/down ratio was 1.3. A strong earnings report was the catalyst. Earnings and sales growth has accelerated for five straight quarters at Pool.

Fortune Brands Home & Security (FBHS) cleared a flat base in March. After six straight weekly gains, FBHS stock pulled back in light volume. It’s currently testing support at the 10-week moving average.

Jabil (JBL) cleared a flat base on March 11, just a few days ahead of its earnings report. It was recently added to Leaderboard when JBL stock found support at its 10-week line.

Follow Ken Shreve on  Twitter @IBD_KShreve for more stock market analysis and insight.

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