Wall Street has an old saying - volume precedes price. The idea is major investors and insiders quietly try to acquire shares before a breakout in price. In practice, there is some validity to the statement. However, strong price gains often occur on lower than typical volume. Conversely, high-volume "selling" is a rotten development for pricing. In what situations should investors focus their attention, when it comes to high-volume buying?
I thought I would start a short regular listing on some of my research formula results looking for extraordinarily high-volume trading days in smaller and mid-cap equity names. These companies specifically have a history in my work of exhibiting strong short-term momentum breakouts. Occasionally, this list will include big winners over the next several weeks, while some will fizzle out and decline in price, and still others will continue to entertain investment gains for months. I am not doing extensive fundamental research on each, but will instead give a brief summary of business operations and any valuation ideas that come to mind.
Readers/investors need to engage in more extensive due diligence on their own and carefully contemplate whether any pick fits their investment criteria for risk/reward swings in portfolio construction. Again, I think this is a foundational starting point for readers, who do not have access to quant sorting technology and databases. Enjoy!
Here is the inaugural VBR list, based on trading over the past week on Wall Street, in no particular order of importance. Stocks are included using a specific set of formulas regarding positive momentum characteristics I have developed over many years, in conjunction with high-volume days with short-term price uptrends. My proprietary formulas include as many as 15 different technical trading areas of computer review.
A major Chinese electric vehicle manufacturer, Li Auto (LI) witnessed a tremendous streak of daily buy interest to new 52-week highs. It appears the whole EV sector bounced nicely from recent weakness, with LI standing out on longer-term charts. The company reported a big jump in customer orders during the week here.
Cyanotech (CYAN) is a company I mentioned in a previous full-length article, when a similar volume buying pattern appeared in March here. I own a small position in this health product and integrated algae growing outfit in Hawaii. Improving margins and sales are noteworthy. The stock trades below book value, and just introduced a new supplement in June. CYAN has solidly outperformed the overall U.S stock market in 2022.
The LGL Group (LGL) is based in Florida and manufactures infrastructure equipment for the telecommunications and computer networking industries. It designs, manufactures and markets frequency and spectrum control products sold throughout the world, operating under two segments, Electronic Components and Electronic Instruments. LGL is slightly profitable, while trading close to cash liquid, almost no liability, accounting book value.
A minor New York restaurant and brand licensing company, Nathan’s Famous (NATH) is the hot dog and related meat investment king. Spices, French fries, onion rings, pickles/sauerkraut, and mozzarella sticks are other products the company markets. NATH appears to have a decent balance sheet and earns a high 10%+ profit margin on record trailing sales currently.
Grand Canyon Education (LOPE) is an incredibly profitable enterprise serving colleges and universities in the U.S. Everything from administrative support, marketing help, faculty training, admissions and financial aid sourcing, and communications/brand development to back-office accounting, audit and procurement services are offered. A major stock repurchase program is underway. Valuations look to be fair, assuming slow growth in the business.
A large Central America land and farming concern, Fresh Del Monte Produce (FDP) has tremendous real estate, marine vessel, and warehouse value underpinning shares. Fresh fruits and vegetables are grown by the company and shipped around the world to grocery store chains. Great food inflation hedge, paying a small 2% dividend. Earnings are on the low end with room to expand. Selling around tangible accounting book value.
This is a basic quant-sort generated list of companies, exhibiting strong buying interest last week. Will bullish action continue is open to question and debate? The goal of the Volume Breakout Report is to give readers access to technical trading data usually reserved for Wall Street firms, hedge funds and well-heeled individual investors.
I suggest readers take deeper dives into any of the selections that appeal to you, and your risk tolerances or sector exposure needs in portfolio construction. Understand small-cap picks should be a limited portion of portfolio design, and a diversified number of stocks is the only rational way to play them. Wild price swings both up and down are integral aspects of the companies mentioned. Please consider using stop-loss mechanical sell orders to reduce downside potential in each name. Depending on your risk tolerance, 10% to 30% stop levels are recommended. Letting your winners run for a while has proven a smart strategy from my trading and research into these computer-generated “formula” choices.
Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.
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Disclosure: I/we have a beneficial long position in the shares of CYAN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This writing is for educational and informational purposes only. All opinions expressed herein are not investment recommendations, and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity and is not a registered investment advisor. The author recommends investors consult a qualified investment advisor before making any trade. Any projections, market outlooks or estimates herein are forward looking statements and are based upon certain assumptions and should not be construed to be indicative of actual events that will occur. This article is not an investment research report, but an opinion written at a point in time. The author's opinions expressed herein address only a small cross-section of data related to an investment in securities mentioned. Any analysis presented is based on incomplete information, and is limited in scope and accuracy. The information and data in this article are obtained from sources believed to be reliable, but their accuracy and completeness are not guaranteed. The author expressly disclaims all liability for errors and omissions in the service and for the use or interpretation by others of information contained herein. Any and all opinions, estimates, and conclusions are based on the author's best judgment at the time of publication, and are subject to change without notice. The author undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional materials. Past performance is no guarantee of future returns.