The law of supply and demand has governed the stock market for well over 200 years. When buyers overwhelm sellers, it causes a big imbalance and sparks an upward thrust for a stock, many times in heavy volume. When sellers overwhelm buyers, look out below.
While IBD is well known for its proprietary Accumulation/Distribution Rating, another price-volume indicator can alert you to stocks moving higher as volume expands — the hallmark of institutional buying.
A stock's up/down volume ratio is found in MarketSurge weekly charts, just below the company's annual earnings table. It's also available in the stock quotes at Investors.com. From the quote page, click the blue checkmark above the daily chart to get to the IBD Stock Checkup and Stock Checklist page. Scroll down to the Technical Performance section, and you'll see it in the Supply and Demand section.
The up/down ratio looks at volume on up days and divides by volume on down days, covering a period of 50 days. There are always exceptions in the stock market, but the focus should be on stocks with up/down ratios of least 1.0. An up/down ratio of 2.0 means the stock shows twice as much up volume as down. An up/down ratio below 1.0 indicates more selling volume than buying volume.
Stock Market: Supply/Demand
The ratio can be used alongside IBD's Accumulation/Distribution Rating, which is a different calculation. The A/D Rating covers the last three months of trading. Heavy-volume up days help the rating, while heavy-volume down days hurt it. Stocks are rated on an A+ to E scale. A+ is the highest indication of institutional buying.
Any time a stock is breaking out of a base, or finding support near the 21- or 50-day moving average, make sure the stock has a strong up/down ratio and A/D Rating. In a bull market, it's strong demand for shares that fuels an upside breakout. While these indicators cover different time frames, it's rare to find major discrepancies between the two.
Up/Down Volume Leaders
That's seen in the accompanying table of stocks with high up/down volume ratios. Stocks shown are priced above 25 a share, with an average daily volume of at least 500,000 shares. Other screening parameters were an up/down ratio greater than 2.0, a Composite Rating of at least 95 and a market capitalization of at least $5 billion.
Contract electronics manufacturer Jabil is on the screen. After an earnings breakout in heavy volume, Jabil has been trading sideways in light volume, while maintaining a strong up/down ratio and A/D Rating.
Some higher-volume declines since the stock started consolidating in early July have lowered Jabil's A/D Rating to B-. Support at the 10-week line could yield an alternate entry for Jabil.
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