Bolting Higher in Heavy Volume

 | Oct 28, 2011 | 3:00 PM EDT
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One indicator I watch like a hawk is heavy volume. When a stock moves either up or down in above-average turnover, it's a sign that institutional investors are getting in or out in big numbers.

Such moves tend to occur on earnings news, company or industry developments, an analyst action or broad market action. In other words, there are plenty of catalysts to spur heavy trade. But that doesn't take away from the fact that stocks rising on heavy trade are getting support from the big money -- and I like to follow in those footsteps.

In Thursday's heavy-volume rally, ETFs were some of the investment vehicles moving up in the heaviest volume, relative to their average daily trade. It's not unusual to see ETFs among the ranks of big movers; on most days, the PowerShares QQQ (QQQ) is one of the most actively traded issues.

However, I ran a separate scan to see which individual stocks benefited the most from Thursday's action, in terms of attracting more buyers than normal.

In the early stages of an uptrend, it's often lower-priced stocks, small-caps and thinly traded names that are among the first leaders. Indeed, several smaller stocks rose to the top of my scans on Thursday night, as being among some of biggest volume percentage gainers.

Cadence Design Systems (CDNS), a California-based maker of hardware and software used in circuit-board design, is up 10% for the week on more than double the average trade.

The stock benefited Thursday from a double dose of good news. Late Wednesday, it reported better-than-expected, third-quarter results, so some upside trade followed that.

But, most stocks follow the general market direction, so optimism about Cadence's prospects were accentuated by the big uptrend in the indices.

The stock was holding its gains, mid-session on Friday. It caught my attention because with Thursday's price action, it cleared a five-month price consolidation. It's still in a technical buy range, though it wouldn't be a surprise to see some profit-taking in the coming days.

Even though it's still a fairly low-priced stock, trading Friday between $11 and $12, Cadence has a decent amount of liquidity, moving more than one million shares a day.

Another mover that caught my eye was Ceva (CEVA), another California tech name. The company designs chip technology used in wireless gear by heavyweights, such as Apple (AAPL), Samsung, Sony (SNE) and Nintendo.

The stock leapt more than 12% Thursday in five times the normal volume, and was building on that price move Friday.

It was another name that got a boost from quarterly results, as well as overall market action.

Ceva is not a low-priced stock, trading at around $33 on Friday, but it has a market cap of just $782 million and it trades only 224,000 shares per day, on average. 

The stock has a high beta, 1.45, so some volatility relative to the general market is to be expected. That means it is not the best choice for investors who like more day-to-day stock price stability.

Finally, another big-volume breakout Thursday came from SolarWinds (SWI). Despite the name, this is not an alternative energy company. Instead, it's an Austin, TX, maker of software to analyze and optimize network performance.

SolarWinds is a mid-cap, with a market cap of around $2 billion. It trades about one million shares a day.

The stock vaulted nearly 16% in Thursday's market rally, with volume more than four times the average. Ahead of Thursday's open, the company said that it beat third-quarter earnings and sales view, and offered upbeat guidance for the fourth quarter.

Seeing a trend here?

It's likely that all three of those stocks would have bolted higher on Thursday, but it's also likely that general market exuberance over the European debt deal pulled them even higher.

SolarWinds cleared a somewhat sloppy four-month double-bottom pattern on Thursday, and pulled back only slightly on Friday. The stock is a bit extended from a proper technical entry point, but watch for an orderly pullback to short-term moving averages as the next possible buy opportunity.

This stock, which went public in 2009, has a history of somewhat erratic trade, so this is another one where investors need to use some caution or be patient through price swings.

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