How to Identify a Stock on the Verge of Changing Trends.
Below is a daily chart of Netflix (NFLX) over the last 2 years. At the bottom of the chart, the volume bars are shown. The gray volume bars represent days when the stock closed higher and the pink volume bars represent days when the stock closed lower. I circled in green the high volume day/days when the stock traded higher. The red boxes are high volume day/days when the stock traded lower.
For 2009 and the first half of 2010, there was more than twice as many high volume up days than high volume down days. For those heavy volume days, the volume was also much greater on the up days. What does that tell us? Prices of stock rise and fall based on supply and demand from the buyers and sellers. If there are many more buyers than sellers, a great demand is created (much like many bidders bidding on one item at an auction.) This causes prices to rise. The overall heavy volume days during this period give a bullish long term outlook for the stock. Notice the stock rose from about $27 at the end of 2008 to almost $110 by the end of June 2010.
Since July, the stock has continued to rise. However, more heavy volume down days are starting to show up. There is still more heavy volume up days but not nearly as much anymore. The large volume on the down days starts to approach the large volume on the up days. In fact, the most recent heavy volume was a down day and heavier than any other day in the last 2 years except for 1 day in October. This could indicate that Netflix long term bull run is slowing and may be approaching an end.
By Scott Chandler
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