Volume is a primary driver of markets, and is a valuable technical tool. It isn't easy to interpret though, as sometimes volume spikes are bearish, other times they're bullish. Rising volume can push stocks down or up, and declining volume can do the same for extended periods of time. Volume analysis therefore needs to be used in a context that takes the larger technical price picture into account. For these four stocks with recent usually high volume, the overall technical picture will be used to help gauge in which direction the next tradable moves will be.

SEE: Introduction To Technical Analysis Price Patterns

AmeriGas Partners (NYSE:APU) fell 5.62% on July 9 on 5.6M shares; average volume in the stock is slightly over 100K. A similar volume spike occurred in March 2012, with the price continuing to slide slightly lower until June of that year. At the time of that volume spike the stock wasn't particularly strong. It had repeatedly tested resistance over the six months prior, and was unable to make headway higher. In 2013 the stock has been stronger, and is in a rising trend. While we may continue to see a bit more selling in the coming days, likely the bulk of it happened on July 9. Strong support is at $46, so if the price stays above that this big volume price drop looks to be a buying opportunity. On the other hand, if the price starts dropping through $46 I'd hold off on going long because a decline into the $41 to $40 region looks feasible.

SEE: The Psychology Of Support And Resistance Zones

Harris Teeter Supermarkets (NYSE:HTSI) jumped 1.53% on July 9 on 7.4M shares, compared the 276K share/day three month average. The stock closed above resistance, signaling a breakout and the potential kickoff to the next leg in the uptrend. Conservatively the target for the breakout is just below $55, or about 10% above the current $49.26 share price. "Buying exhaustion" is the concern here though. With such a huge volume spike will there be many buyers left? That's the question. If the price begins to drop back below $48, the upside breakout was likely false and I'd hold off on getting long. If that occurs, it doesn't necessarily mean the stock will drop like a stone though. Only if the price drops below $45 does the technical picture turn more short-term bearish. The main trade here is to see if buying continues above $49, and if so, I like the long into $55+.

Progressive Waste Solutions (NYSE:BIN) has had three straight days of rising volume as the stock has jumped (cumulatively) 9% from $21.55 on July 3 to $23.50 on July 9. The three month average volume is about 156K. In this case, the volume is an alert to watch and see if the stock can break the $23.91 May high. If the stock doesn't break above that level, or it does and then quickly retreats back below it, then the recent buying will likely be erased. A breakout above $23.91 is a bullish signal, although technically I don't see an advance much beyond $25.25. Therefore, this sets up as mostly a bullish day or swing trade if the price breakouts through $23.91; I'd keep a tight stop on the trade incase of a false breakout.

SEE: Backspreads: Good News For Breakout Traders

World Fuel Services (NYSE:INT) fell 0.69% on July 9 on 1.7M shares, which is about six times average. At one point in the day the stock was down about 4% but made a strong recovery, creating a candlestick called a "hammer". The candlestick is given it's name as it indicates the stock may be hammering out a bottom. In this context that may be true. The stock bounced strongly just above $37, which has been support (tested four times) going back into late 2012. The problem is that overall the stock has been trendlines for much of the last two years, meandering between about $37 and $45 in 2013. If this is a bottom, look for the stock to rise toward $41 at which point the stock will need to break through recent highs. On the other hand, if the stock continues to decline below $36.98 a test of support near $34 is quite likely.

SEE: Using Candles To Understand Market Behavior

The Bottom Line
Volume analysis can be confusing as it signals different things based on the overall context of the stock you're watching. At minimum though it alerts you to potential trading opportunities, as often there is follow-up movement after the unusual volume. Such moves may be a continuation of the trend or a reversal. Since stocks with unusual volume can be volatile as there is so much interest, I generally use the phenomenon to generate short-term trading ideas and keep the risk very low with a stop-loss.

Related Articles
  1. Forex Education

    Break Into Forex In 12 Steps

    Learn how to get started in forex trading.
  2. Forex Education

    Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.
  3. Professionals

    Becoming A Chartered Market Technician

    The CMT certification involves three tough exams. Find out what you need to do in order to pass.
  4. Active Trading

    Moving Averages

    Discover one of the most reliable indicators in technical analysis and learn how to incorporate it into your trading routine.
  5. Charts & Patterns

    Analyzing Chart Patterns

    Learn how to evaluate a stock with a few easy-to-identify patterns.
  6. Trading Strategies

    Basics Of Technical Analysis

    Learn how chartists analyze the price movements of the market. We'll introduce you to the most important concepts in this approach.
  7. Active Trading Fundamentals

    4 Stocks With Bullish Head and Shoulders Patterns for 2016 (PG, ETR)

    Discover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered.
  8. Chart Advisor

    Uptrending Stocks Dwindle, a Few Remain (EW, WEC, WR)

    The number of uptrending stocks is shrinking, but here a few that remain in uptrends.
  9. Chart Advisor

    Trade Setups Based on Descending Trend Channels (LBTYK, RRC)

    These descending trend channels have provided reliable sell signals in the past, and are giving the signal again.
  10. Investing News

    Is It Time To Sell Technology Stocks? (LNKD, AAPL)

    Technology stocks have taken a drubbing in recent days. Is it time to sell them?
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  3. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. 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 >>
  6. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
Trading Center