While plenty of stocks managed to rally in tepid volume in the first quarter, it's still the case that an upside move in heavy turnover indicates institutional conviction.
In illustration, Anika Therapeutics (ANIK) rallied to a 52-week high Tuesday, completely bucking the market's downside trend. Upside volume on both Monday and Tuesday was heavier than normal. Shares of this company, which makes treatment for bone and cartilage ailments, are well extended from their last buy point in early February. That's when the stock rebounded from solid 10-week support.
At this juncture, with the market in a correction, stocks that have been racing higher in heavy volume stand a good chance of pulling back as the market retreats. However, a prior record of strong and steady price and volume growth -- like that of Anika -- often means a stock is well positioned for further gains after the general market has completed its pullback, and starts crafting a new rally.
Analysts have strong estimates for Anika's income in the next two years. The company is seen earning $0.27 a share this year, an increase of 27% over 2011. It has not yet announced the date for its first-quarter results. In 2013, analysts expect earnings to grow another 27%, to $1 per share.
I don't make buy or sell decisions based on analysts' estimates, which can be wrong on either the high or low side. However, the estimate is a guidepost as to the level of institutional confidence in a stock at any given time. That said, that confidence in the fundamentals does not preclude some investors from taking profits after a lengthy run-up.
Another big-volume gainer in the early part of the week was Bridge Capital Holdings (BBNK), a very small company that operates two banks in Santa Clara County, Calif. Shares of regional banks, in general, have been strong performers the first quarter rally. For example, Texas Capital Bancshares (TCBI), which is now correcting, was a solid performer until late March.
As for Bridge Capital, its shares rose to their best level since August 2008 during Tuesday's session, although they reversed to finish near session lows. Volume was more than double normal levels. This is an insanely thin stock, moving only 18,000 shares per day. It's exactly the kind of name that traders or investors need to monitor very carefully, and be prepared to cut losses or take profits in a heartbeat.
Away from the banking sector, healthcare-industry software maker Mmodal (MODL) was another stock gaining in heavy volume, on a day when few stocks met that description. This is another small stock that flies under the radar of many investors. It has market capitalization of around $623 million, and trades about 139,000 shares a day. It's a relatively new initial public offering stock, having gone public in February 2011 at $8 per share.
Mmodal had a rough time in the 2011 market correction, falling to a low of $6.21 on Oct. 4, the day the wider market bottomed and reversed to finish the session higher. But, so far in 2012, Mmodal has advanced 14.55%, and shares have been forming a consolidation since early February. Because this is a thin stock, it's exhibited a history of volatile trade. In the past three weeks, Mmodal has been getting support along its 10-week line.
A buy point for Mmodal could occur above $11.24, but in a market downturn, buys are risky. That's even more amplified in a thin, volatile stock such as Mmodal.
Heavy trading volume indicates institutions are grabbing shares. In a market correction, even if it passes a buy point, Mmodal may be worth watching until the next broad rally gets under way. It's common for about half of stocks to pull back to a price beneath their buy points -- that trend is often exacerbated in a market downturn.
So, while the risk may be greater than usual at the moment, stocks under heavy accumulation are often good prospects to continue tracking -- and you'd do well to keep your eyes open.
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