What does it mean when a stock rises a lot on very low volume?

Posted by DannyUpshaw on February 01, 2008 (02:29AM)

I've been following a stock that's been rising substantially on very low volume.  Below 200,000 shares most of the time, occasionally spiking to 500,000.  If memory serves correct, the company has 60 million shares outstanding. 

I'm unclear on what this means...  

 

Posted by DannyUpshaw on February 01, 2008 (02:42AM)

also, i'm looking at another stock trading at around $12.00, that is supposed to be bought out at $12.50 later this year.   What happens when you own a stock on the day that it's being bought out?  The buying entity would give me the .50 difference in stock price?  If so, buyin in at $12.00 and holding for a month or two looks like an easy gain.  Is that how it works?

 I'm still new at some of this stuff... just curious.

Posted by mikestreet5ter on February 01, 2008 (04:26PM)

60 millions shares outstanding means 60 millions shares owned by investors.. low volume spike means someone is willing to bid up the price and buy it at a very high price.

And yes, you will receive 12.50 once the company is acquired; but.... how long do you have to wait? remember time-value of money and inflation.... if you have to wait for a year...it's not worth it.

Posted by anglish on February 02, 2008 (04:36AM)

If it happens during a general downtrend, it can mean the stock is "testing" itself.  The fact that it occurs on low volume suggests it will only be a temporary rise and the downtrend will continue before long.  The volume is low because the majority of investors watching the stock don't have much confidence in the upward spike, so they are not buying more.  The big-money, experienced investors are waiting for the stock to reach its real bottom before buying.  When that happens, you will see a rise on high volume that is more likely to be a true reversal, meaning the stock is going to continue rising. 

Be sure to check other indicators as well, such as the RSI.  If the RSI is over 70, the stock is probably overbought - another indication that a sell-off (drop) is imminent.  As with all signs, these should be taken in the context of other indicators and the market in general.  Hope this helps.

Posted by campfirewest on February 02, 2008 (07:13AM)

anglish, what is RSI?

Posted by locogmac on February 02, 2008 (09:58AM)

RSI is Relative Strength Index, just another technical indicator used in charting. Basically like Anglish says, it gives you an idea if the stock is oversold or overbought. But, as all technical indicators, it is just that- an indicator and nothing more.

Posted by snowman on February 11, 2008 (03:51PM)

I agree with anglish, I have also found it is useful to understand what a chart looks like when a stock is under accumulation. Or a stock is tanking, because it is going to have bad news or something called distribution. Recognizing these patterns will help you. Recently though there are fairly few companies being bought out. So charts are scarce, I am talking daily charts. Usually they open a little higher take a nice drop then steady buying to a new high. The Yahoo chart show no signs of this but we were in a bear market, and it did show up in the options. Part of the accumulation pattern is that volume is up.

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