How To Gauge Stock Market Sell Signals With Stocks On The Move

The law of supply and demand has governed the stock market since its inception. If there’s strong demand for a stock and not much supply, the price goes up. Conversely, low demand and high supply tends to result in weaker price performance.

Supply and demand is on display every day in the Stocks on the Move screen on the homepage page of Investors.com.

There’s no doubt that the Up section is a great way to find emerging stock market leaders moving higher in heavy volume. In many cases, these stocks are often in the early stages of being accumulated by mutual funds and other large institutional investors.

In general, it’s the institutions that cause the big volume spikes in a stock. Sometimes stocks are moving on earnings or other news events. Other times, headlines might be hard to come by, but it could be fund managers in the early stages of building a new position.

While the Down section may not be a great source of stock ideas, it is a great tool to help recognize signs of institutional selling in a stock. In many cases, it might be a sharp break of the 50-day moving average in heavy volume. Other times, it might be the heaviest-volume down day since a stock started its run.

How To Spot Stock Market Selling

It’s always a good idea to scan this screen from time to time to identify distribution, or institutional selling, when it’s happening.

Singapore-based internet giant Sea (SE) appeared in the Down section on Tuesday after the company reported third-quarter results. At the time, shares were down nearly 8% and volume was tracking 687% above its 50-day average volume.

But the first sign of institutional selling in Sea appeared on Oct. 15 when the stock plunged through its 50-day moving average as average turnover more than doubled. On the weekly chart, the higher-volume weekly decline ended up being a distribution week for the week ended Oct. 17.

Life360 (LIF) also appeared in the screen on Tuesday after an earnings sell-off. The weakness came after Life360 broke sharply through its 10-week line during the week of Oct. 17. It was a sell signal because it was the first break of the 10-week line since Life360’s breakout from a consolidation in mid-May.

During Thursday’s stock market rout, memory and storage firm Sandisk (SNDK) appeared in the Down section. Shares of the stock market leader were down nearly 15% in afternoon trades. Volume was on pace to be the heaviest for a down day since the start of the run, giving a sell signal to current holders.

Follow Ken Shreve on X @IBD_KShreve for more stock market analysis and insight.

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