When Dealing With Shares Never Forget The Basics!
What really makes a share move up or down? In today's ultra high tech
World we sometimes forget the basics of supply and demand.
VOLUME is a vital and basic element to stock trading decisions.
One axiom of technical analysis suggests that while prices may fall of their
own weight, only volume can drive prices higher over time. The spring
advance of CACI International, an information systems and high technology
"solutions" company out of Virginia, is one of the best examples of this
phenomenon I've seen in this spring rally.
CACI was moving in a tight consolidation from mid-February into late March
when the first significant high volume day occurred on March 27th. The
uptick in on-balance volume (overlaid on the volume chart) supports the
heavy buying, as does the bullish candlestick. Even though CACI continued to
trade in a very tight range for another three weeks, the heavy volume day on
March 27th was a tip-off that buyers were interested in seeing this stock go
up--moreso than sellers were looking to get out of their positions. From the
beginning of the year until the first big up moves in late April, CACI has
advanced from about 22.5 to 28. While this 24% increase is a more than
reasonable return, the rising on-balance volume strongly suggested that
holders of the stock believed there was more to come.
In most cases, given a market with a neutral or mildly bullish bias, the
only thing that would keep a stock like CACI down (outside of a catastrophic
event) would be the determination of holders to sell, which
is not reflected
in the rising on-balance volume, nor in the tightness of the
consolidation--particularly between late February and early April.
As good as the returns from CACI were from January to late April, the
advance from late April to late May was nothing short of spectacular, In
about 30 days, CACI climbed over 53%, largely on the backs of heavy buying
on May 9th and 10th, as well as on the 22nd, 23rd, and 24th. Unlike many
high-volume, high percentage moves, CACI's advance had almost no gaps. In
fact, each advance was supported by a significant support area of at least
two weeks. Nearest support currently is at 36.5 as the stock trades in the
low 40s.
The importance of these small support areas is that the advance is more
likely to be sustainable if there are areas to which CACI can retreat. The
pair of two to three week support areas here can function as places where
selling can occur without overly disrupting any renewed advance. This is in
contrast to what are commonly called "V" advances in which stocks that have
declined rocket upwards without pause, often reaping brief, but fleeting
gains. Advances that come with both heavy volume and short-term support
"platforms" are much more likely to provide reasonable entry points than
those without.
MSTS picked up CACI last week. Already it is showing a nice profit.
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