Aggressive Stock-Picking, Week 4: How to Trade Off of Unusual Activity
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.
Last week's assignment focused on how to trade stocks that are rising on unusual volume. To recap, unusual volume is one type of unusual stock activity that can hint at a large, sudden price increase. However, it's hardly the only one.
Many times, large outside shareholders may load up on a stock in anticipation of a big event, such as a merger , an acquisition or a major new order. Another harbinger of unusual activity is when a company announces a buyback .With a buyback, if the shares are actually bought, that activity should help increase the stock price, because the number of shares available to the public will decrease. But this doesn't always occur immediately, and sometimes it does not occur at all. A company can announce a buyback program but not actually execute the buyback for a number of months, or years (see "Ask TheStreet: Buybacks"). For companies that have announced a stock buyback in the previous week, look at Stockpickr's Top Stock Buybacks. And for possible recent outsider activity (by "activist" investors), check out Stockpickr's Latest Activist Situations, which is a portfolio based on the mandatory "13D" filings that indicate that an outside investor has taken a major (greater than 5%) stake in the company. A big investor move like this could result in a shakeup in company management, and ultimately a boost for the stock price. A recent activist situation took place with Freeport-McMoRan Copper and Gold (FCX). This month, Atticus Capital LP (see "Trade Like Hot Hedge Fund Atticus Capital" and "Atticus Proves Not All Hedge Funds Will Go Belly Up") disclosed that it raised its stake in Freeport-McMoRan to over 7% (the stock has steadily gone up since the disclosure). Even with FCX's year-to-date rise of around 30%, an increased stake by Atticus is a strong sign that the stock price can go a lot higher.
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