How to Use ‘Volume Surge’ Charts to Catch Stock Trends

One of the new features The Times is adding to the daily stock tables and to the “Daily Market Roundup” is a focus on changes in trading volume.

The stock tables now include a figure called “volume percentage” (abbreviated as “Vol. %”) for each stock.

As the accompanying story explains, this figure compares the previous day’s volume in the stock to its average daily volume for the last 65 trading days. A figure of “+50” means 50% more shares traded hands than the average of the previous 65 days.

We are substituting this figure for the actual trading volume in the stock. The idea is that for most investors, it’s more relevant to see the trend in trading activity than the actual number of shares that traded.

To that end, we also are adding new tables each day to the Daily Market Roundup, which today appears on Page C16.

These tables show the stocks that had the greatest percentage increases in trading volume on the previous day as compared with their 65-day volume averages. The column containing that data is labeled “Dly. % Vol. Chg.”

The tables show the leading stocks in terms of volume increases in three categories: large stocks, mid-cap stocks and small stocks. A stock’s size is determined by its market capitalization (share price times number of shares outstanding), as detailed in the tables.

Many professional traders use volume increases to flag stocks for further research.

A significant increase in volume may result when a company issues important news, of course. In that case, the stock price may also move sharply up or down.

But investors may be more interested in the stocks that have had unusually high volume with only a modest increase in price. That may indicate that a small group of buyers is actively accumulating a stock, perhaps based on information not yet widely known.

Likewise, a stock with high volume whose price is edging lower, or staying stable, could be in a “distribution” phase: Large investors may be trying to quietly exit without tipping off other investors. This could presage a sharper decline in the price.

When researching stocks with large volume increases, investors should look into other details about the company and the stock, including:

* Large (or “block”) trades by major investors. Foreign institutional investors and other big players sometimes wish to avoid a dividend, distribution or other taxable event in a stock. In a move known as “dividend roll,” large blocks of stock may temporarily be traded to an intermediary that will receive the dividend, then sold back to the investor. The net effect on the share price may be insignificant.

* Stock splits. Stocks that split will sometimes be on the volume-increase table for a few days immediately after the split takes effect, simply because more shares will be available for trading--even though the effect on the price may be neutral.

Markets editor Daniel Gaines can be reached by e-mail at daniel.gaines

@latimes.com.