When you say "excellent 7 to 3 accumulation for 6 months" ...What do the numbers mean? Are they stock price? (June 2, 2003)

  The 6 months would be the length of the base. During the base we look to see whether the stock is being accumulated by big money institutions or are they being quietly sold off. By counting the weeks the stock rises in price (as measured by the close each week versus the prior week close) as volume rises (accumulation) and the number of weeks the stock falls in price as volume rises (distribution) we can get a good idea whether the stock was being bought up or sold off during this time. Institutions like to move quietly when they can so as not to cause price swings in stocks they are trying to buy or sell. They want to get in or out ahead of everyone else. They take their time buying in when they can. The good ones spot the strong sales and earnings growth stocks and start to buy them. When the rest of the market starts waking up to the stock that is usually when the breakout comes as many want a part of it. Other institutions buy in and the stock breaks out. We like to follow the big money as that is what really drives stock prices (they have the most money to spend).

Accumulation only needs to be positive (e.g., 4 to 3) for accumulation to be sufficient. If it is much stronger (e.g., 4 to 1 or 7 to 3 in the example you cited), that just shows stronger accumulation. This sets the foundation for a really good move on the breakout because the stock was being accumulated in the base, and those institutions that believed in the stock then are going to be even stronger believers as their ideas are proved correct. They most likely won't sell, and instead will use pullbacks to buy more positions. That gives the stock longer life, that better foundation to move higher.


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