Author: KEN SHREVE
Source
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.
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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 July 2022, Li Auto (LI) had a 2.0 up-down ratio, and you could see how it got that high ratio by looking at its weekly chart. The EV stock climbed as much as 120% from its May 2022 low.
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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