Spotting Unusual Intraday Trading

Can Give You the Jump On the Crowd.

The difference between being great and just good is often times in doing the little things better - going the extra mile.

Most average investors don't bother to follow intraday trading in their stocks. They don't think it's that important. But, today markets and stock prices move much faster than they did 15 or 20 years ago.

You've got to stay on top of things.

Powerful computers and communication links, rapid dissemination of news and rumors, and quick decision making by some major money managers can send a stock tumbling or soaring very quickly.

Investors, who follow the market closely using services like Ticker Tape Digest or other reports giving intraday activity and up to the minute action have a great advantage.

An example of that could be seen with a very popular stock, Microsoft Corp. (MSFT), the producer of computer software. In the early part of 1995, Microsoft's stock trended higher aided by optimism about its new Windows 95 product.

The stock rose from 60 in January to a peak of 109 1/4 on July 17. On that day, Microsoft announced it was starting production of its much anticipated Windows 95. After the close that day, it reported slightly better than expected earnings too.

If one followed the intraday trading in Microsoft on July 17, they would have seen some interesting and bearish activity taking place under the disguise of a rising price.

In the first hour of trading, Microsoft gapped from 103 (the prior days close) to open at 107 3/4. To "the naked eye" that appeared quite good. But, a closer look showed that net tick volume for that first hour was a negative 385,000 shares.

What happened was that of the 1.1 million shares traded in the first hour, the majority was sold with down ticks. The second hour showed the same bearish pattern as 772,000 shares changed hands with net down tick volume at 262,000 shares.

To a keen observer, the negative tick volume was showing that Microsoft was under intraday distribution despite the seemingly good news and higher stock price.

The best move for traders and speculators was to sell, or at least lighten up.

The next day, July 18, Microsoft headed south - and in a big way - as several brokerages downgraded the stock. In the first hour, it fell to 101 1/8, off 6 7/8. It rallied a bit later in the day, but faltered and finished at 101 1/2.

The following day was even worse. Microsoft tumbled again to as low as 88 1/2, down 12 1/2. It rallied the next several days, but was not able to get above 100.

Microsoft, of course, has been an outstanding stock long-term. The company has shown good earnings over the years and it has paid off handsomely to be a holder. But, one never knows, when the tide will turn and a sharp correction could ensue.

The point is traders and investors must be alert to the intraday trading, if they want to do extremely well. The saying: "You snooze and you loose" means a lot.

Of course, when one follows intraday trading it has to be placed in the proper context with daily and weekly chart patterns of a stock. When setting buy points or sell points for a stock, though, try to do it with a mind's eye on the intraday action.

If one needs to sell because a stock is down, and then they wait until the close, they can get killed.

Several years ago Spartan Motor Corp. reported a 250% increase in quarterly earnings. But, the stock fell 3 during the day. It tried to rally, but failed. By the close, Spartan was down 8. It fell even further in the following sessions to be off 40%

Investor's who use technical indicators as important buy and sell tools should establish before the day the price or indicator parameter necessary to trigger a buy or sell.

Try to set up you buy and sell signals giving consideration for intraday activity. Of course, one doesn't need to buy or sell a complete positions. Strategies of scaling in or out can be used.

However, it's important to be decisive in trading. Do what you have to do. The temptation most average investors fall into is: "There is still more time left in the trading day. Let's see what happens."

end

Copyright Ticker Tape Digest August 23, 1996