Trading volume: The quiet, yet strong indicator
Today's Financial News - Posted May 18, 2009
Pops in trading volume have a strong history of foretelling future action. Find the right combination of volume and price action and you are onto a surefire winner. Remember, it is all about supply and demand.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Trading volume is one of the most important and reliable indicators of a stock’s future performance. It is an undeniable fact, yet it gets little attention from the average investor.
Obviously, the critical balance between supply and demand is what drives a position’s price up or down. The degree the equation is off balance indicates the velocity of the share price change.
Anytime I see a stock with trading volume approaching three, four or even five times its normal daily activity, it is the equivalent of a glaring neon sign shouting, “Hey dummie… look here.”
Today, that stock happens to be a tiny (and I mean tiny) stock with a market cap of just over $10 million. Normally, I do my best to avoid covering such tiny, overly volatile companies like Blonder Tongue Laboratories (AMEX:BDR), but with a name like that how could I resist?
Actually, it is the company’s sector focus that gets my attention. Working to produce equipment for the broadband industry, Blonder Tongue works with cable providers, phone companies and even electric utilities. It is developing products for an industry that is going through a major strategic shift and is seeing a host of merger and acquisition activity.
Blonder Tongue will certainly benefit from the growing exchange of capital.
With over 32,000 shares traded today, when normally just 6,000 shares exchange hands, I am not alone in my thoughts.
More buyers than sellers
Financially, Blonder Tongue is in a stronger position than many of its similarly capitalized peers. The company’s most recent earnings report proves the company has more than enough potential to put a few extra bucks in its shareholders’ pockets.
Sales increased by nearly 30% to $8.93 million. Margins increased by 5%. Earnings from continuing operations swung into the black, posting a gain of $393,000 compared to last year’s figure of a loss of $516,000.
All that in a quarter that is typically the company’s worst of the year.
With positive cash flow, dwindling debt and a pile of cash, the company appears well positioned to get through whatever remains of the current recession.
Looking forward, Obama’s trillion-dollar spending spree can only trickle down to the company. As the nation works to improve its infrastructure and Internet providers work at increasing their broadband capacity, Blonder Tongue’s business will see a boost.
Once today’s buying activity slows down and profit-takers shave a few cents off the company’s $1.70 share price, consider taking a stake in Blonder Tongue. If you have some room for speculative risk, in your portfolio, the company should be a contender.
– Keep coming back throughout the week as I will be discussing the volume pops as they appear on my screen. I am positive it will create more than one profit-making opportunity.
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