Our research indeed shows about 40% of stocks that ease back to the pivot (buy) point after a breakout will still go up. However, your best chances of success are when you buy a stock as it breaks out of a sound base on heavy volume.
The important thing to know is that breakouts can still be in good shape unless the stock dives below the pivot point. As always, sell the stock if it goes 8% below your purchase price. Sometimes, you may get away buying a stock when it goes back to the pivot. But that’s not likely to happen in a weak market.
Hawkins Cooker gained 1.2% on above-average volume today. The stock hit a new high and closed 1% above its pivot price of Rs 3,371.20. However, it closed at lower end of the day’s range which is not a convincing break-out. If the stock closes over its higher end of the day’s range, it will be an ideal entry point, given its fundamental strength.
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In the stock market, a great company is like a Porsche car, and volume is the stock’s fuel. You can blather all day about the company’s potential, its fabulous new product, its incredible CEO and so on.
But if the company’s stock, after making a great run, begins to hit new highs on light or simply average volume, the stock will likely cease to act like a high-performance roadster. In fact, the stock may be beginning to put on the brakes on its spectacular run.
When new highs keep occurring on low volume, it is prime time to be watching for serious sell signals.
The Difference between Heavy Volume and Light Volume
Please go to a daily chart at MarketSmith India and look at the bottom part of each chart. Each thin vertically-aligned bar represents how many shares a stock traded each session. It is easy to tell on any given day whether trading increased vs. the prior day, decreased, or stayed virtually the same. Continue reading “Why New Highs In Low Volume Are A Great Time To Sell Your Biggest Winners”
Bombay Burmah Trading surged 23% during the week and hit a new high. As a result, the stock broke out of 11-week long consolidation base pattern and closed 16% above its pivot price of Rs 2,668.