When you're a basketball center, a Hollywood star or some other eye-catching figure, it's tough to slip unnoticed into a restaurant.
So it also goes with big funds wanting to establish a position in a public company without drawing attention to the move.
Sure, eventually word will get out, and they'll appreciate it if shares then move higher.
But while they're buying shares, the funds don't want to attract attention and pay more than they have to for their positions. Like a celebrity at a restaurant, they just want to take some bites in peace and move on.
For savvy investors, there is nonetheless a way to see when funds are nibbling at a stock. And you want to see this happening, because big investors are the buyers who really have the power to send a stock up sharply.
You want to study a stock's price and action, looking for a streak of up weeks on the stock chart. You generally should watch for four, five or six up weeks in a row as a new base takes shape.
Some of these up weeks should feature above-average volume, since that typically signals buying by heavyweights.
And note that this pattern of up weeks typically will help form the right side of the stock's base. Keep in mind that a base is just a period of price consolidation that occurs when a stock naturally catches its breath after an advance.
Last year, Cabela's (CAB) provided a good example of a base with quite a few up weeks in row.
In June through July, the outdoor sports equipment retailer crept higher for five weeks in row. (1) With this winning streak, it carved out the right side of a cup-without-handle base.
Weekly volume was well above average for one week in June (2) , as Cabela's lifted above its 10-week moving average.
The five up weeks set the stage for a powerful , which came in the week ended July 27. Cabela's topped a cup at 41.71.
With Cabela's, it would have worked well to lock in your profits when they reached 20% or 25%. (3) Waiting for another sell signal, such as an undercut of the 10-week moving average, would have meant giving up some gains.
- Investment & Company Information