My main focus is tracing abnormal volatility which flags the potential of momentum coming into an underlying name or sector. As a momentum trader, I rarely look at major indexes, but at small-cap names with high institutional or insider ownership. This is because small-cap names offer many advantages to traders. One being that they tend to move with a greater velocity than large-cap names. This is due to supply and demand.

Generally, retail traders follow the major indexes, while assuming these benchmarks reflect the entire market. However, this is often not the case. Just analyzing the major indexes limits your ability to make higher profits. This is not a problem for the hobby trader, but for the trader interested in making a living, this can become a major issue. Rather than limiting oneself to big name companies, retail traders should embrace every potential trade. Small-cap stocks that are not components of a major index rarely follow the same price action. Small-cap stocks often move in advance of the indexes and at times are not correlated, especially here in Canada.

Innergex Renewable Energy (TSX:INE)

Innergex Renewable Energy (TSX:INE) is a prime example of a small-cap stock that has continued to make new highs while the TSX composite index has continued to make new lows.

After bottoming in November, Innergex Renewable Energy (TSX:INE) has continued to trickle higher, consolidating in a massive ascending triangle pattern.

Last week, the price action broke out from that ascending triangle pattern to new all-time highs. Relative strength vs. the TSX composite index has broken out to new 6-month highs, the SCTR ranking has pushed back above 75% (top performing quartile of TSX stocks), Momentum (PMO) is beginning to accelerate, and the Accumulation line has begun to turn higher. This price action is very bullish. Stocks that make new all-time highs confirm investor confidence and these stocks tend to continue making new all-time highs.

Traders think that simply learning technical analysis will teach them how to trade, which is not true. Historically, stock market data was primarily price and time, volume was rarely included because there were only a handful of exchanges. The first charts had to be hand-drawn in the point and figure format. Candlesticks were not introduced to the western markets until the 1990’s.

Currently, there are a multitude of exchanges and alternative trading systems for matching buy and sell orders. Retail traders tend have no idea what is going on behind the scenes. A large number of institutional orders are now filled in dark pools and high frequency trading firms have become an integral part of the market.

Because of this, volume has now become a necessary indicator in fully understanding the intricacies of today’s price action. This has become an essential aspect of technical analysis not taught in most books. Adding volume indicators will help provide the missing data, crucial in this newly automated marketplace. The Volume By Price indicator, the Accumulation/Distribution line, Volume Oscillators, and flow of fund indicators such as the Money Flow Index, will help identify hidden activity of the major market players.

View all our answered questions and analysis on Innergex in the member area here. If you're not currently a member, you can view all the answers and analysis by signing up for a 1 month free trial.

Avigilon Corp. (TSX:AVO)

Avigilon Corp. (TSX:AVO) has just broken out to new 52-week highs and above Volume By Price resistance. After gapping up near the beginning of August, the price action traded in a very tight sideways pattern with higher than normal volume for the remainder of the month. This is a specific pattern that often forms when buy side institutions are accumulating a stock. The Accumulation line is now confirming this pattern as it breaks out with the price action. The Chaikin Oscillator (ChiOsc) and the Money Flow Index (MFI) are confirming the strength of the breakout as they push above their downward sloping trendlines. This breakout appears to be very powerful and suggests more new 52-week highs to follow.

View our full report on Avigilon Corp. in the member area here. If you're not currently a member, you can view the full report for free, by signing up for a 1 month free trial.

By Dwight Galusha from SetYourStop.com

 

The author currently does not own any of these three names and does not plan on owning any of those three names within the next 72 hours. 

 

Nothing in this article should be deemed as a recommendation to buy or sell securities and is for informational purposes only. Please do your own due diligence before making an investment decision.