Why the Buyer Demand Rating is a Key to Finding Great Stocks


“For the best prospects, do a price and volume check of each week within the stock’s base to help you conclude if the stock is showing sound accumulation or too many price and volume defects. Next, do a fundamental analysis checking for excellent earnings, sales and return on equity.” – William J. O’Neil, MarketSmith Founder

Winning stocks typically start rising in heavy volumes before they move onto new highs. The strong volume increases indicate that mutual funds and other big funds are actively taking positions.

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Should you Average it Up or Average it Down?

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“If you let a stock go down 50% from where you bought it, you must make 100% on the next stock just to break even. Now, how often do you buy stocks that double in price?” –William J. O’Neil, MarketSmith Founder

Investors are often reluctant to sell when stocks go down in price from what they paid for them. To add to the harm, many investors tend to average down and buy more of the stock that already shows a loss. Our strategy turns the concept of averaging-down on its head, and we suggest adopting the pyramiding or the averaging-up technique. This strategy ensures that the losers are weeded out, and the capital is instead deployed to winning stocks – resulting in averaging-up your initial buy price. In general, three out of four stocks follow the market direction.

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Overhead Supply Can Repulse A Stock’s Climb


“Just remember buying at new highs is buying into emerging strength.” – William J. O’Neil, MarketSmith Founder

Have you ever wanted to go out with friends, but faced opposition from your husband or wife? The concept of overhead supply works kind of the same way.

Overhead supply, also known as percent off high, represents price levels at which a stock’s recovery is impeded as it tries to rally back from a steep decline. The pressure comes in the form of investors who bought the stock earlier at lofty prices and are waiting for the stock to recover just enough so they can sell and break even.

In essence, these are the holders who are thinking “If I can just get back to even, I will sell.” This can add enough selling pressure to thwart a stock’s advance, unless there is overwhelming demand.

For example, let us say a stock makes a run from 50 to 100 a share, and then tumbles back to 75. Now, suppose a buying area emerges at 85. If you buy at that level, chances are, you are facing those folks who bought at the 90-100 level. As soon as the stock is back around their purchase price, they will unload shares. Conventional market wisdom says to buy low and sell high, but overhead supply is one reason to buy stocks at or near their 52-week high. At those levels, there’s little or no resistance to work through. That is why it is a good idea to buy stocks just as they are breaking out of sound bases into new high ground.

Overhead supply doesn’t drag a stock forever. According to research, its effects diminish after 18 to 24 months. In other words, after a while, fewer shareholders are still around waiting for a price recovery to eliminate their loss.

So, before you buy a stock, study its chart carefully and check for overhead resistance.

Let us look at a couple of examples:

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