Investing 101: How to Trade High Volume Breakouts
When a stock price rallies investors, may get drawn in without taking a good look at the rally's underlying causes. One way to investigate if the price trend is legitimate is to check the stock's trading volume.
Trading volume is the number of shares or contracts that have exchanged hands in a given period, usually over a day's trading. When more activity is surrounding a stock, it means more people are essentially voting on the stock's value.
When a large trading volume forms a trend, meaning if it starts to move price upwards or downwards, the trend is considered stronger and more credible than if only a few investors (weak trading volumes) are determining the change.
Using high trading volume to confirm the validity of trends is an important starting point, but these stocks can look even more attractive when paired with the "Golden Cross." This is a technical indicator that signals a stock's 50-day moving average has moved above its 200-day moving average, indicating recent upside momentum may persist.
When a golden cross is paired with strong trading volume, investors can be assured that many investors feel strongly bullish sentiment toward the company. If you believe in crowd mentality, this may be an interesting set of indicators to track.
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As a final note on high volume trading with momentum stocks: If prices are moving upwards, and volume is increasing simultaneously, it indicates investors feel the stock has more to price in. When a stock is in an uptrend but trading volume is declining, it's a sign the trend is losing its momentum.
For that reason, in creating the list below we searched for golden cross stocks that, on Friday, experienced a daily trading volume was more than 2 times the average daily trading volume over the last two months.
Investors are collectively weighing in as bullish on these momentum stocks. Do you agree with them? (Click here to access free, interactive tools to analyze these ideas.)
1. Greenbrier Companies: Engages in the design, manufacture, and marketing of railroad freight car equipment in North America and Europe. SMA50 at 21.67 vs. SMA200 at 20.53 (current price at 25.83). Today's trading volume is equivalent to 4.97 days of average volume.
2. Alliance Resource Partners: Produces and markets coal to utilities and industrial users. SMA50 at 73.44 vs. SMA200 at 71.97 (current price at 82.69). Today's trading volume is equivalent to 3.98 days of average volume.
3. PHI: Provides helicopter transportation services to the integrated energy, and independent exploration and production companies primarily in the Gulf of Mexico. SMA50 at 21.53 vs. SMA200 at 21.37 (current price at 22.45). Today's trading volume is equivalent to 3.45 days of average volume.
4. Commercial Metals (NYS: CMC) : Engages in recycling, manufacturing, fabricating, and distributing steel and metal products, and related materials and services in the United States and internationally. SMA50 at 13.40 vs. SMA200 at 13.35 (current price at 15.27). Today's trading volume is equivalent to 2.45 days of average volume.
5. Zumiez (NAS: ZUMZ) : Zumiez, founded in 1978, is a mall-based specialty retailer providing sports-related apparel, footwear, equipment, and accessories. SMA50 at 25.38 vs. SMA200 at 24.30 (current price at 31.62). Today's trading volume is equivalent to 2.38 days of average volume.
6. Aspen Insurance Holdings: Provides insurance and reinsurance products and services worldwide. SMA50 at 25.98 vs. SMA200 at 25.58 (current price at 27.03). Today's trading volume is equivalent to 2.17 days of average volume.
7. Fushi Copperweld (NAS: FSIN) : Develops, designs, manufactures, markets, and distributes bimetallic wire products, principally copper-clad aluminum (CCA) and copper-clad steel (CCS). SMA50 at 7.13 vs. SMA200 at 6.84 (current price at 7.95). Today's trading volume is equivalent to 2.03 days of average volume.
8. Cracker Barrel Old Country Store (NAS: CBRL) : Engages in the operation and development of the Cracker Barrel Old Country Store restaurant and retail concept in the United States. SMA50 at 46.91 vs. SMA200 at 45.62 (current price at 50.80). Today's trading volume is equivalent to 1.99 days of average volume.
9. Delphi Financial Group: Provides integrated employee benefit services. SMA50 at 30.01 vs. SMA200 at 27.45 (current price at 44.20). Today's trading volume is equivalent to 1.72 days of average volume.
10. SuccessFactors (NAS: SFSF) : Provides cloud-based business execution software solutions that enable organizations to bridge the gap between business strategy and results worldwide. SMA50 at 32.12 vs. SMA200 at 30.04 (current price at 39.81). Today's trading volume is equivalent to 1.72 days of average volume.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above.
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