Increasing Volume to Uncover Institutional Buying - Screen of the Week

By Zacks | June 19, 2012 AAA

One of the best ways to find stocks on the move that are grabbing investors' attention is to screen for stocks with increasing volume.

This is because increased volume shows investor interest. As more investors buy the stock, that stock's price should go higher.

But the individual investor, while important to the market, doesn't really have the firepower to affect volume the way that big institutional investors do.

And very few things can move a stock more than institutional buying.

Why is that?

For one, institutions have the ability of buying tens of millions of dollars worth of a stock and even hundreds of millions of dollars. And because their purchases are often so large, it typically takes weeks, if not months, for an institutional investor to build a position.

Given this commitment, considering it will also take several weeks or months to get out, you can be sure that these institutional investors have done plenty of homework to feel good about the fundamental prospects of the company.

This does not mean you can ignore your own analysis or the stock market as a whole. But screening for stocks with rising volume (along with prices of course) can put some fantastic stocks on your radar screen.

What Kind of Volume Increase to Look For

I prefer to search for at least two weeks of increasing volume along with rising prices. And in my testing I have found that 3 weeks performs even better.

One week volume spikes, however, will not get thru as oftentimes those can be driven by one day events. Instead, it's the successive volume increase, which shows true buying demand, that gives this set-up its value.

The volume increase also doesn't have to be huge. We're not talking about a several hundred percent increase. In fact, often those massive increases prove to be turning points.

What we're looking for are noticeable increases, like 10%, 20% or 50% increases, etc. But nothing outrageous, like a 10 fold increase. Remember, the last thing an institutional investor wants to do is call too much attention to himself, while he or she is in the midst of building a position. But if you know what to look for, you can see all of this happening in plain site. And get in for the ride as they flesh out the rest of their position.

Screen Parameters

  • Current Price greater than Price from 1 Week Ago
  • Price from 1 Week Ago greater than Price from 2 Weeks Ago
  • Price from 2 Week Ago greater than Price from 3 Weeks Ago
  • Weekly Volume greater than Weekly Volume from 1 Week Ago
  • Weekly Volume from 1 Week Ago greater than Weekly Volume from 2 Weeks Ago
  • Weekly Volume from 2 Week Ago greater than Weekly Volume from 3 Weeks Ago
  • Zacks Rank less than or equal to 3
  • Price greater than or equal to $5
  • Average 20-day Volume greater than or equal to 100,000 shares

The most important elements to this screen are the price and volume items (especially the volume). The Zacks Rank also helps to make sure that their earnings estimates are on the rise. The price item however is a personal preference as I generally don't buy stocks under $5. But it should also be noted that many institutions won't either. But if you're looking for lower priced stocks, you can of course remove this item. And lastly, the average volume item ensures there's enough trade activity on a daily basis to get in and out of the market easily.


Here are 5 stocks that passed this week's screen:

AUTH AuthenTec, Inc.

BGS B&G Foods, Inc.

MRLN Marlin Business Services Corp.

SLM SLM Corporation

STAN Standard Parking Corp.

All of these stocks look good fundamentally. But their successive increases in weekly volume suggest institutional buying and warrant an even closer look.

Get the rest of the stocks on this list and start screening for weekly volume increases to uncover institutional buying on your own. It's easy to do.

Click here to sign up for a free trial to the Research Wizard today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks' portfolios and strategies are available at:
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