MediaG3 (MDGC)

[dkspartan1]

Price Down on Heavy Volume


http://moneycentral.msn.com/investor/alerts/glossary.asp?TermID=25

This alert signals that a company's stock price has dropped by at least 5% on trading volume that is at least three times the average daily volume of the last 13 weeks.

Volume is the fuel of the market, since stock prices only move up or down when shares are trading hands. Most stocks trade hands at an even pace for days or weeks at a stretch until special events occur. Those events might be rather ordinary, such as an announcement of earnings, a new product or new executive. Or they might be extraordinary, such as a merger or a new corporate alliance.

Sometimes, however, trading volume spikes upward and the price trades down for no apparent reason. Very often it ultimately turns out that the reason was major selling of the stock by large institutions, hedge funds, mutual funds or private investors. The stealthy exit of strong players from a stock with enough trading power to boost volume by more than 200% and trim the price tends to be bearish for current investors. These major players are generally more knowledgeable and critical about their investments than individual investors -- and their exit at a particular price tends to set a resistance level, or ceiling, for the future trading of a stock.

By itself, however, a fall in price on big volume is not a reason to sell or avoid a stock. It is just a clue that the stock is likely to be under selling pressure -- sometimes also called "distribution" -- by major players. Occasionally stocks that fall fast when sold by price-momentum traders -- that is, investors who buy stocks simply because they are going up, trying to catch the trend -- can go up equally fast when better news hits.

To determine whether the stock is under distribution by a big investor, wait a few weeks and check Form 13-G SEC filings in Stock Research. Any owner of more than 5% of a stock must tell the government -- and, by extension, you -- of any changes in their holdings within 10 days. Also, check Company News to determine if the company has announced any bad news, such as a disappointing earnings report.