Aggressive Stock-Picking, Week 3: How to Play the Unusual Volume Game
08/24/07 - 06:04 PM EDT
Stockpickr Staff
Editor's note: The Aggressive Stock-Picking Training Program is a series of six weekly assignments. To start with Week 1, click here. Each assignment is based on one of James Altucher's strategies in his book, Trade Like a Hedge Fund. To get a copy of the book, click here.
This assignment was written by Stockpickr member Ira Krakow. Professional traders don't just look at a stock's price moves. They also look for big changes in volume
, because major moves in volume can signal unusual activity, such as insider buying or selling , or buying or selling by "superinvestors."
(For insider buying, check out Stockpickr's Insiders and Buybacks Portfolio. And for examples of superinvestor portfolios, check out the individual portfolios of Warren Buffett, Carl Icahn, George Soros or Sam Zell.)
Combining your search for stocks with unusual volume (a change of 100% or more from its 30-day average volume) with stocks hitting their 52-week highs allows you to focus like a laser on the potential winners. To see how the pros use this combination to spot potential "rocket stocks," simply review Stockpickr's Rising on Unusual Volume List, which is updated at the end of each trading day.
What prompts the sudden rise in interest in a stock? Take a look at Longs Drug Stores (LDG Quote - Cramer on LDG - Stock Picks) and find out.
If you look at the Aug. 16 Rising on Unusual Volume list, Longs was up 3.47% on a 400% change in volume. Why such a huge change? Longs reported a blowout quarter , with 2007 second-quarter income of 67 cents per share, 33% over the 51 cents reported in the second quarter of 2006. Longs also repurchased 500,000 shares of stock, for a total investment of $27 million, with an additional $47 million still authorized. Longs reported strong performance in both its retail pharmacy and its RxAmerica pharmacy benefit segments. All of this adds up to a stock worth further research.
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