Charting University » CAN SLIM » S - Supply and Demand
S = Supply and Demand
Our study of the greatest stock market winners validates what most investors understand.when demand for a stock outpaces supply, the price usually heads north. The best way to measure a stock's supply and demand is by watching its daily trading volume. When a stock rallies up in price, you want to see volume rise at the same time, which may represent institutional buying that can really power a stock's move. When a stock pulls back in price, you want to see volume dry up indicating no significant selling pressure.
Winning Characteristics
1. Watch the demand for shares by looking at the Volume % Change for each of your stocks. It will show you immediately how much a stock traded vs. its average daily volume over the last 50 trading days. For example, a stock that trades 100,000 shares on average will have a 50% Volume % Change if it trades 150,000 shares on the day.
2. Stocks closing at their highs for the day or gapping up in price can indicate strong demand.
3. Companies buying back their stock in the open market and companies showing stock ownership by management can be positive indications.
4. When a stock breaks out of a price consolidation area, trading volume should be at least 50% above its average daily volume, indicating strong demand.
5. In many cases, a strong stock breakout will see volume up 100% or more for the day, indicating solid buying and the possibility for further price increases.
Investing Tip: A stock moving up in price on lower than normal volume could be a sign of weakness. Look for strong demand supporting price increases.
How to Track Demand for a Stock
1. Volume % Change is computed for all stocks in IBD's main stock tables. This helps you easily identify stocks with higher than average demand.
2. In the quotes area on investors.com, Volume % Change is updated continuously throughout the day, looking at volume at that point in the trading session.
3. Investor's Business Daily can help you track the level of supply and demand among large institutional investors. The Accumulation/Distribution Rating (ACC/DIS Rating™) , provided for every stock in our database, analyzes price and volume changes over the past 13 weeks. An A or B Rating is bullish, because it indicates big investors are, on net, loading up on the stock. Such accumulation is one sign that the stock could turn out to be a winner.
The Accumulation/Distribution Rating (ACC/DIS Rating™) can be found in IBD's main stock tables as well as on IBD Stock Checkup® at investors.com.
"Stocks On The Move" lists higher quality stocks that are moving up in price on unusually high demand. Investors.com provides a continuously updated version of the Stocks On The Move list as well.
For a broader look at the moves of institutional investors, there are two key charts to check out on IBD's Industry Groups page. One is "Big-Cap Growth Funds Vs. Small-Cap Growth Funds". When the line on this chart is moving up, it tells you big-cap stocks are outperforming small-cap stocks. This indicates there are probably more investment opportunities in large-cap stocks than in small-cap stocks, based on current institutional demand. "Value Funds vs.Growth Funds" is the other screen that can help you zoom in on where current demand is focused.