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Byline: JONAH KERI
Volume plays a pivotal role at the top of a stock's base. A high-volume breakout shows institutional investors are on board. And in a healthy market, they can propel a stock to huge gains.
Don't focus only on volume at the top, though. A high-volume spike at the base's bottom can tell you much about a stock's future.
If the stock bounces off the bottom of its base and closes in the upper half of its daily or weekly range, it's got a good shot at forming a healthy right side to its base. If a wave of volume shoves the stock northward at the bottom, even better. The stock is getting institutional support.
Focus on where support kicks in. If a stock bottoms at a key level like the 200-day moving average, that's another sign the big-money investors are on board for the ride.
America Online had already enjoyed a solid run-up before settling into a new base in July 1998.
But even the leading Internet service provider couldn't overcome the market's correction that summer. Three out of every four stocks follow the market's lead. So when the market switches to bear ...