Insider insight Richard W Arms. Jr.
For months the stock in question has done very little. It has moved sideways in a narrow trading range on moderate volume. Suddenly, volume doubles, the stock moves sharply higher, breaking out above the old congestion and signaling the beginning of a move which could be extremely profitable! It's a trader's dream, if he or she happens to notice the move and recognizes its importance. The dream can turn into a nightmare, however, if the move is quickly aborted and the stock drops back into the old range or, worse yet, if it abruptly turns around.. There are ways to recognize a move quickly and ascertain its validity.
Every stock move, no matter how small, has a cause. The minor jiggles throughout the trading day may be caused by unimportant extraneous factors such as a seller who needs to raise cash or a buyer who has studied the fundamentals and decided the stock looks like a good value. Larger moves often are caused by a news item as it is released to the public. Still others may be brought about by rumors. Sometimes, overall market conditions can affect the action of individual issues. There are other reasons for price movement, reasons which are often unidentifiable, yet their effect is dramatically apparent. They are the moves we usually attribute to "insiders." The assumption is that someone knows something we don't know about the stock and is acting in accordance with that knowledge. Usually, by the time we find out why the stock is moving, the move is over and we have missed an opportunity. Yet these moves, if recognized in time, can be very profitable. Our job, then, is to look for fingerprints on the stocks; find those issues which are being moved for no apparent reason and jump aboard while the move is still in its early stages.