Why it’s important to watch price and volume
Timothy J. Truebenbach is the
President of True Capital Management and general partner of True Capital
Partners LP, a hedge fund. He uses a disciplined model that trades on the
intermediate-term time frame. For a free trial to Tim’s Nightly Stock Analysis
Report
click here or call
888-484-8220 ext. 1.
The market remains in an uptrend, but it is testing investor
conviction as we speak! Thursday’s trading produced a clear distribution day in
the major stock indices. These days are created when an index declines on
heavier volume than the previous trading session and it is worse when this
occurs on above-average volume; as it did yesterday.
Chart courtesy of
StockCharts.com
This market has produced choppy trading out of the smaller-capitalization
leaders. Ideally, you would like to see stocks rally and pull back in an orderly
fashion. International Securities Exchange
(
ISE |
Quote |
Chart |
News |
PowerRating) did not do this as
it closed below its 50-day moving average on above-average volume. If the stock
can re-gain this area of support it may produce results similar to Digital
River
(
DRIV |
Quote |
Chart |
News |
PowerRating) which did the same thing a couple weeks ago. The latter
stock went on to strong gains despite the evidence of selling.
Chart courtesy of
StockCharts.com
One leader that has kept everyone guessing is US Global
(
GROW |
Quote |
Chart |
News |
PowerRating). This
stock has stellar fundamentals and looked to be the growth traders’ profit
center when it initially ran from $25 to the mid-30’s in a very short period of
time. Subsequently, it gave back all of the gains, formed a new base and broke
out again on 11/9. The verdict on this breakout is still pending.
Chart courtesy of
StockCharts.com
With small- and mid-cap stocks trading in volatile fashion it may be easier to
look at large-cap names for the consistency an investor and especially an
institutional money manager look for. Cisco
(
CSCO |
Quote |
Chart |
News |
PowerRating) produced
outstanding results and gapped higher on Thursday. Even though it failed to buoy
the overall market, this stock has pushed steadily higher with healthy pull
backs in price along the way. Names like Morgan Stanley
(
MS |
Quote |
Chart |
News |
PowerRating), Apple
(
AAPL |
Quote |
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News |
PowerRating) and Google
(
GOOG |
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PowerRating) have done similar things. Even though
the profits are not as large as smaller-cap names, it is much easier to leave
these stocks in a portfolio and sleep at night!
Chart courtesy of
StockCharts.com
One leading stock to keep an eye on is Franklin Resources
(
BEN |
Quote |
Chart |
News |
PowerRating). The
stock broke out of a base in September and is currently pulling back in price
after strong gains. It is testing a key area of support to determine if it will
get back on track or go the way of Motorola
(
MOT |
Quote |
Chart |
News |
PowerRating), a former leader
that has failed in a rally attempt.
We remain in an uptrend, but it is very important to continue watching price and
volume. If the market sees further distribution (which we will comment on again
on Tuesday) along with failure of leading stocks, it means this rally is in
trouble.