A great company is like a high-performance Porsche. Volume is the stock's fuel. If you desire to master when to sell stocks correctly, remember this analogy. Here is how new highs on low volume can halt a big run for a company.
You can go on all day about the company's potential, its fabulous new product, and incredible CEO. But if the company's stock, after making a great run, begins to hit new highs on low volume, it will likely cease to act like a high-performance roadster. The stock may be beginning to put on the brakes on its spectacular run.
When new highs keep occurring on low volume, it's the prime time to be looking for serious sell signals.
After a stock sees a volume dry-up at the peak, be ready to sell at least some shares when it drops very hard through the 50-day moving average on high volume. Or, the stock may shatter a long-term trend line.
A stock's volume often tracks above its 50-day moving average when its price climbs to new high ground. This is where the stock has never been before. There is no overhead resistance, and buyers should be luring offers with their increasing bids.
If this doesn't drum up the increased volume, you have a problem. Remember, too, that the uptrending stock already has had institutional support behind it. That's how it got to be an uptrending stock.
What do you think would happen if the big-money funds stopped buying? The stock would fall under its own weight. And if you find the stock consistently making new highs without solid volume, that's a sign that the tide may be turning. That is, sellers may have more influence over the stock's future prices than the buyers.
For example, Wipro (Nse): The stock broke out of a stage-three flat base in April. Since then, it has advanced over 20%. However, when it made a new high on June 14, the volume was below average. In fact the run-up toward fresh high was on lower volume. It then succumbed to profit booking and breached its 21- and 50-DMA. In the meantime, the breakout decreased to 12% from 20% and its technical profile deteriorated.