Supply and demand are two basic terms in economics. Perhaps nowhere are they more prevalent than in the stock market.
The supply-and-demand dynamic is what moves a stock. For every buyer in a transaction, there's a seller, but buyers can overwhelm sellers at times, causing the price to spike. And sellers can overwhelm buyers, causing the price to fall.
One of the main tenets of IBD's investing philosophy is to follow the buying and selling of institutional investors. Their buying power is the main fuel for a stock's major advance. And when they start selling a stock, it's usually a sign to take profits if you own the same stock.
To get a first-hand look at institutional activity every trading session, check out Stocks on the Move, one of IBD's flagship stock screens continuously updated on the home page of Investors.com. An expanded version of the screen is published in the print and electronic edition of IBD. A weekly version is available in the Monday-dated weekend edition.
Here's how it works. If you see a stock up 3% in price and a volume change of 100% halfway through the session, it means it's on pace to trade twice its average volume. To qualify for listing, stocks up in price must have an Earnings Per Share and Relative Price Strength Rating of 70 or higher with the current year's earnings estimate up at least 15% from the prior year. Those with EPS and RS ratings of 80 or higher and are up in price are boldfaced. Only NYSE stocks priced $20 and higher are shown. The cutoff for Nasdaq stocks is $16.
When institutional investors start accumulating a stock, their presence is hard not to notice. Big volume always gives them away.
When a stock that normally trades 1 million shares a day suddenly trades 5 million, the volume percentage change is 400% — a sign that fund managers are in there buying hard. Riding their coattails can be highly profitable. And recognizing when they're selling can help you protect hard-earned gains.
For a fund to acquire, say, a 2%-3% stake in a company, it can take weeks or months of purchases to accomplish this. It's not done at all once. That's why it's important to monitor the daily action in Stocks on the Move. The first appearance for a stock can be the first of many as institutional investors build a large position.
The accompanying table shows just a handful of recent big winners that appeared in Stocks On The Move after breaking out.
- Stocks & Offerings