One of the key tenets to IBD’s investing methodology is to target top stocks showing signs of accumulation. The term accumulation means gains in rising volume and is synonymous with institutional buying. When big investors such as mutual funds, banks and insurance companies start buying a stock, big volume always gives them away. And big volume is the fuel for powerful upside moves.
IBD readers are perhaps most familiar with the Accumulation/Distribution Rating. It’s a good way to tell which stocks are being bought and sold by institutional investors. Stocks are rated on an A+ to E scale. A+ means heavy institutional buying. E signifies heavy institutional selling.
The up/down volume ratio is another good way to find stocks under accumulation. The ratio covers 50 days trading. It’s calculated by dividing total volume on up days by total volume on down days. Target stocks with ratios above 1.0.
The up/down volume ratio is available for every stock in the Technical Performance section of Stock Checkup at Investors.com. The ratio is also found in MarketSmith weekly charts and on Leaderboard charts.
Heavy-volume gains and low-volume declines will help the up-down volume ratio. But heavy-volume declines and low-volume gains will hurt the ratio. Same with the Acc/Dist Rating.
Top Stocks: Strong Demand
The common bond among many of top stocks with strong up/down volume ratios? Many are holding gains from their breakouts, which means alternate entries could be seen soon.
In the biotech group, Halozyme Therapeutics (HALO) has been stubborn about giving back gains after a move to new highs the first week of November. The breakout occurred just before the S&P 500 confirmed a new uptrend with a follow-through day on Nov. 4.
The first buy signal for Google parent Alphabet (GOOGL) came when it gapped out of a cup base on Nov. 4. It held near highs after that. The stock became extended from a flat base this month, but still has a solid up-down ratio near 2.0.
Today, Roku (ROKU) boasts an up-down ratio above 2.0 and is in buy range from the 463.09 buy point of a cup with handle.
Innovative Industrial Properties (IIPR) is forming a cup-like base with a 222.18 buy point. The up-down ratio is near 2.0.
This article was originally published Dec. 4, 2020, and has been updated. Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
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