These four stocks broke through support on May 6, with volume that is more than double the average. The strong selling through a key zone typically indicates more downside to come. Strong volume is one thing, but a very large volume spike could actually mean a reversal in the opposite direction. Three of these stocks saw strong selling, one saw massive selling. Looking at the overall price picture, as well as volume, provides evidence as to which direction these stocks are likely to go next.

First Energy (NYSE:FE) broke below support at $33 on more than double the average volume, indicating a further slide. The long-term trend for the stock is down, so the sell signal indicates another wave lower is coming. The price is likely to find some support near $31, but given the long-term downtrend isn't a buying opportunity. Only if the price stays above the February low at $30.10 and then rallies above $35 is a longer-term uptrend likely emerging. Downside targets include $29.75 and $26.50. At the moment, the only positive attribute for the stock, from a price perspective, is the dividend currently yielding 4.4%. That yield will improve if investors are able to pick up the stock at a lower price.

First Energy (NYSE:FE) broke below support at $33 on more than double the average volume, indicating a further slide.

Target (NYSE:TGT) is also in a downtrend since the summer of 2013, and broke aggressively below support in the $59 region on May 6. The 3.72% sell off, on almost triple average volume, shows the short-term rally over the stock is heading lower again. The February low at $54.66 may provide some support for a time, but is likely to give way as the downtrend continues. A rally from this point above $62.88 is a bullish sign and indicates the stock is starting an uptrend. Downside targets include $53.50 and $47.75 based on Fibonacci extension levels.

Target (NYSE:TGT) is also in a downtrend since the summer of 2013, and broke aggressively below support in the $59 region on May 6.

Yelp (NYSE:YELP) had a great start to the year, but since hitting $101.75 in March the stock has lost almost half of its value. The very high volume over the last month shows the aggression of the sellers to liquidate, but also indicates a significant correction (higher) could soon emerge. Too early to go long yet -- since sellers are still piling in, dropping the stock 13.39% on May 6--a rally above the two-month downward trendline could spark a bear-market rally. The rally, if it develops, should falter by the time it reaches $85, likely before. Small rallies that are halted by the trendline present short-term shorting opportunities while sellers are still aggressive. Given the sharp decline, and lack of any major pullbacks so far, a downside target is difficult to establish. One area of probable support is $43, a price where buyers gapped the stock higher in August 2013.

Yelp (NYSE:YELP)  had a great start to the year, but since hitting $101.75 in March the stock has lost almost half of its value.

Twitter (Nasdaq:TWTR) fell 17.81% on May 6 on the busiest day of the stock's history. Volume was about 10 times average, and was greater than even IPO day. A "lock-out" period ended which allowed some redistricted shareholders to liquidate their stock. Given the decline over 2014, investors took the opportunity. With such massive volume though, many of the "hurting" investors are now out of the stock. Such a surge in volume following a decline is more typically associated with a (near) bottom, as opposed to a continued sell-off. Buying on the volume surge is not enough evidence though, as the price could continue to decline as the last worried shareholders dump their shares. A rise above $36.25, under this specific circumstance, may be all that is needed to get buyers back into the stock and pushing higher...potentially quickly.

Twitter (Nasdaq:TWTR) fell 17.81% on May 6 on the busiest day of the stocks history. Volume was about 10 times average, and was greater than even IPO day.

The Bottom Line

Volume can aid in analyzing what is happening with price, but can be deceiving. Strong volume can confirm a move, which has likely happened in First Energy and Target. Yet when volume skyrockets, it is more likely to indicate a reversal is near (at least short-term) than a continued move in the same direction. Twitter could soon be an example of this. Volume is evidence, used to provide a trading edge, but interpretation of volume (or price action) won't always be accurate. Therefore use stop losses when trading and don't trade too big for your account.

Related Articles
  1. Chart Advisor

    ChartAdvisor for May 2 2014

    Weekly technical summary of the major U.S. indexes.
  2. Chart Advisor

    ChartAdvisor for April 25 2014

    Weekly technical summary of the major U.S. indices.
  3. Chart Advisor

    ChartAdvisor for April 18 2014

    Weekly technical summary of the major U.S. indices.
  4. Chart Advisor

    ChartAdvisor for April 11 2014

    Weekly technical summary of the major U.S. indices.
  5. Chart Advisor

    ChartAdvisor for April 4 2014

    A technical summary of the major U.S. indices.
  6. Chart Advisor

    ChartAdvisor for March 27 2014

    Technical summary of the major U.S. indices.
  7. Chart Advisor

    ChartAdvisor for March 21 2014

    A technical summary of the major U.S. indices.
  8. Chart Advisor

    ChartAdvisor for March 13 2014

    Summary of the major U.S. indices.
  9. Trading Strategies

    How To Buy Penny Stocks (While Avoiding Scammers)

    Penny stocks are risky business. If want to trade in them, here's how to preserve your trading capital and even score the occasional winner.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
RELATED TERMS
  1. Valium Picnic

    A market holiday or a slow trading day.
  2. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  3. Indicator

    Indicators are statistics used to measure current conditions ...
  4. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!