Looking For Volume
Without volume, most price moves lack
authority in my view. So I remain unimpressed by Friday’s moves in B2B
and biotech stocks, coming as they did on light trade in the abbreviated
post-Thanksgiving session.
However, given the general lack of
market participation, those stocks moving on higher than average volume are
worth notice. On Friday, suppliers of broadband gear sold off after AT&T
Broadband asked some suppliers to postpone shipping pending orders. Some of
these shares then pared their losses on heavy volume.
This action distinguishes these stocks
from gap-down
short candidates. In the latter case, a stock gaps down, then falls
further to close in the bottom half their trading ranges. No institutions come
to the rescue. The stock is in too much trouble, or the general climate is just
too frightening, for the smart money to step up to the plate.
The institutions decidedly did step up
to the plate Friday in the case of Commscope
(
CTV |
Quote |
Chart |
News |
PowerRating) and Scientific-Atlanta
(
SFA |
Quote |
Chart |
News |
PowerRating).
After gapping down and heading lower, both stocks closed near the top of their
daily ranges on powerful volume. This does not mean that you should consider
these long candidates. Quite the contrary. They remain under tons of overhead
supply. Stocks like this don’t tend to come roaring back. Assuming they don’t
fall further, they need time to grind out the weak holders.
However, loss-paring in these battered
issues could be another sign of a market trying to find its bottom.
Commscope said it stood by Q4 earnings
projections despite AT&T’s decision not to accept shipments for orders in
the fourth quarter, but the company lowered its sales and earnings guidance for
2001. Scientific-Atlanta Inc. said the decision by AT&T Broadband reduce
fiscal Q2 sales by 1% to 2%.
Both of the following charts use the
same logarithmic price scale, display 50-day and 200-day moving averages for
price in red and black, respectively, and a 50-day moving average in blue for
volume.
Remember that all stocks are risky. On any trade, reduce your risk by limiting your position size to a percentage of your total
account and setting inviolable price stops. For an intro to combining stops with
position sizing, check out my lesson, Risky Business.