As the major indexes continue advancing to the upside, on flat or declining volume, a handful of stocks are relatively strong and also saw a marked increase in volume recently. As the market moved down slightly on Tuesday these stocks popped higher on double (or more) the typical volume of the respective stock. For some of these stocks the jump in volume could mean more buying interest is coming into the stock, likely to push it higher. For other stocks, the jump in volume and price could mean the trend higher is nearly over as the buyers have exhausted themselves.
SEE: Gauging Support And Resistance With Price By Volume
Lions Gate Entertainment (NYSE:LGF) has been storming higher in 2012, nearly doubling its value. The trend has accelerated on large volume Monday, Tuesday and in early trading Wednesday. This type of volume is likely unsustainable for the stock to maintain as it is more than four times the volume typically seen in the stock. The move higher on Wednesday overshot the the trend channel the stock has been trading in, typical of a final move higher in an uptrend. The retail investor recently got heavily involved in this stock, potentially due to the release of the "Hunger Games" movie(s); a drop back below $15 could scare some people and result in further selling. There is very little support until $13.50 and $13. Momentum can still continue to the upside so short selling into strength is not recommended, but technically there are some signs that most of the upside move in this stock has already taken place ... at least for the time being. If the stock pulls back and them moves back above $16.19 (recent high) it would be a sign of continued short-term strength.
Williams Companies, Inc (NYSE:WMB) has been moving higher this year (up roughly 16% YTD) within a price channel. Tuesday saw the stock gap higher on triple the average volume of the last couple weeks. Volume of that magnitude has often been associated with a turning point in the stock. While the reversal is not always immediate, it often occurs within a few days. There is a notable exception to this, though, which occurred in October 2011 where Williams Companies had a big jump on large volume and then continued to move higher over the following couple weeks. The trend should be respected but so should the tendency of Williams to turn on high volume. Tuesday's low was $31.06. A drop below that (use $30.90 to avoid false breakouts) could mean the gap is going to fill and there is little support until $30.50 followed by upward sloping trend channel at $30. A move back above Tuesday's high at $32.09 is a positive sign and the stock could see $33 by the end of the month.
SEE: Analyzing Chart Patterns
Network Appliances (Nasdaq:NTAP) has been moving higher throughout 2012 (nearly 25% YTD) and witnessed a jump in price and volume on Tuesday. A trend channel has also been drawn on this chart, which provides a guide for how the stock may trade going forward. As the stock continues to move within this channel the first upside target is $48 and we could see $50 by early to mid-April if the trend continues - this is where the upper trend channel band intersects around that time. On the other hand, a drop back below $42.50 means the trend could be in danger of reversing. Primary support is just above $40, so a decline below it would negate the uptrend.
Tiffany and Co. (NYSE:TIF) is up on the year has been trending higher since mid-January. Since the start of February daily volume has averaged close to 2.5M shares and on Tuesday the stock did 8.66M as it jumped from $68.68 to $73.27. Over the last year some other gaps higher have occurred, and have been met with selling, closing at least a portion of the gap over the ensuing week. Whether that occur this time is unknown. A drop below $71.75 (near Tuesday's low) means the gap is likely to at least partially close. Support is at $70.90 and $67.25 with a move below the latter signaling an end to the current uptrend. $75 was a strong support/resistance area at different times throughout 2011 and therefore could be a significant resistance level going forward. With the uncertainty of the outlook and resistance overhead, waiting for a pullback toward the trendline presents a lower risk opportunity for those looking to get long.
The Bottom Line
When volume and price jump it can mean different things depending on where the stock is in its overall trend. Support levels should be watched, as a drop back below support after an aggressive move higher can result in steep reversals. Momentum is on the side of the buyers in these stocks at the moment, and that should not be fought (by shorting) but it does mean investors can be using the aggressive price advances and additional volume to consider taking some profits. For some of these stocks, further appreciation is likely, while for others it may be limited.
SEE: Momentum Trading With Discipline
At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.
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