What moves the needle for stocks? That is a million-dollar question if you consider that many stocks trade several thousand if not several million times each day in the stock market.
A smart investor knows that any stock that makes big moves in heavy volume has the backing of a much larger force. Investors buying or selling stocks want to be in sync with such larger forces.
The bulk of these forces are mutual funds and other professional investors. Funds trade massive blocks of shares, moving the price as they complete gigantic orders over weeks or even months. But it is not possible to track these orders as they are executed because mutual funds normally disclose their holdings only in quarterly reports. By the time they release their reports, they may have already sold what they bought.
However, it is possible to track these transactions in real time through price and volume changes in individual stocks.
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Stock Market: Tracking Fund Activity
Volume will start building up when a fund starts taking a position in a stock. Since their massive orders often take days to fill, the volume will likely rise along with the price as the fund's stake increases, showing that the stock is under accumulation.
Expect to see the reverse when funds sell a stock. Volume will rise but the price of the stock will fall as funds exit a position. This also will likely be in a phased manner as large orders get executed gradually. Stocks are said to be under distribution when funds liquidate.
Investor's Business Daily has a tracking tool that measures the daily price and volume changes of a stock: the Accumulation/Distribution Rating. It aggregates price and volume to measure whether funds on the whole are net buyers or net sellers of a stock. Remember, while one fund may buy a stock, another may sell it.
The Accumulation/Distribution Rating covers a 13-week period — basically one quarter's worth of trading. It has a scale of A to E, with A signaling strong net purchases and E showing that the stock is under distribution. The C is a neutral rating. To make it more granular, the scale has a plus and minus sign for each letter. So a stock with B+ is under stronger accumulation than one with B.
The rating is available in stock quotes at Investors.com, in the data tables in IBD Weekly and in IBD MarketSurge.
Other Chart Indicators
The rating is one of several tools that investors should use to evaluate their stock picks.
When buying, it's best when a stock that is under accumulation is also breaking out to new highs from a well-formed base. At the very least, the stock should be in an uptrend. Also, use the 50-day moving average as a cutoff line: Stick with stocks trading above this important price gauge.
Refine Your Stock Picks With The IBD Stock Screener
Don't automatically sell a stock because the Accumulation/Distribution Rating has worsened. Check for weakening chart signals, such as a break of the 50-day line.
Nvidia scored just a D+ Thursday, indicating funds have been net sellers over the past thirteen weeks.
Amazon.com and Alphabet, by comparison, are both near record highs and their A/D Ratings are a sparkling A and B, respectively.
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