Sunday, April 27, 2008

Volume spike

Donald Cassidy defines:

Volume spike as a sudden and extremely large immediate increase of trading activity from one day to the next in any given stock. In a large majority of case the spike is driven by some news that has occurred since the prior day’s market close .In such situations, it is predicable that price will gap away form the prior day’s closing level at the opening of the new day’s trading. Most companies announce major news out side normal trading hours, thereby minimizing the number of instances where spikes begin during mid session. Spikes in volume record such huge and sudden shifts in investor opinion that they essentially cannot accompany small pries changes, if the event driving an observed large rise in volume were one with ambiguous meaning such that investors’ buying and selling decisions were will balanced, there would not be an explosion of volume at all.

Events that drive volume spikes :

Many of the company-specific kinds of events that drive volume spikes are negative in nature, but some are positive.

An analyst’s picking up coverage with a strong buy recommendation.

One or more significant upgrades of analyst’s opinions

Receipt of major contract.

Granting of a patent.

Discovery of major drug for treatment of widespread disease.

Announcement of a major corporate strategic alliance with a prominent partner.

Victory in major court or administrative proceeding, especially if not reversible on appeal.

Failure in trial of major drug or medical device for treatment of an important disease.

Denial of FDA approval for drug or device that is extremely important to a given company.

Loss in a major court or administrative proceeding, especially not reversible n appeal.

Termination of an agreement under which the company was to be acquired.

Withdrawal of needed financing

Donald Cassidy is the author of the book TRADING ON VOLUME

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