“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
In technical analysis, the process of identifying supply and demand in a stock starts with analyzing price and volume on the daily and weekly charts.
Are up days or weeks accompanied by heavy volume? Does the stock close in the upper half of the trading range, either on the daily chart or the weekly one? And on the down days, are they trading on light volume? If a stock falls on heavy volume, does it close in the upper half of the trading range? Answers to such questions in the affirmative strengthen the overall quality of a base pattern.
However, in some cases, the stock price might be volatile as the base takes shape, resulting in a “wide and loose” pattern. There might be a lot of institutional selling, in the form of distribution days or weeks, in the base. Both are negative and can keep a lid on a stock’s breakout.
Continue reading “Beware of Distribution: Too Much of it in a Base Can Play Spoilsport”