Amid the ongoing stock market volatility, investors should be on the hunt for high-quality growth stocks approaching potential buy points. To maximize your chances of investing success, be sure to follow the "smart money" by tracking institutional demand.
The bulk of trading in the stock market is done by institutions: mutual funds, hedge funds and other major investors with billions of capital to invest. While public disclosures are usually limited to once per quarter, investors can use a technical indicator to gauge the institutional buying and selling in real time — volume.
How To Invest: The Accumulation/Distribution Rating
It usually takes such big investors weeks or even months to accumulate the many thousands or even millions of shares they need to fill out their positions. This activity will be reflected in IBD's Accumulation/Distribution Rating, which analyzes a stock's price and volume trends over the prior 13 weeks. Gains in above-average volume will lead to a strong A/D Rating, while losses in high volume reveal institutional selling.
A rating of "A" or "B" indicates that funds are buying, or "accumulating," the stock. A "C" rating is neutral, and a "D" or "E" indicates net selling, or "distribution."
When analyzing a stock, its price and volume action is just one of the key characteristics to monitor. Another simple way to easily gauge a stock's overall strength is to use the IBD Composite Rating. The rating combines five IBD stock ratings. The EPS, Relative Price Strength, Accumulation/Distribution, Sales+Margins+ROE and Industry Group Rating all come together.
Be sure to check out IBD's Bear Market Guide on how to handle a struggling stock market rally
How To Find Stock Market Leaders
You can find many of the stock market's potential leaders by tracking the Accumulation/Distribution Rating ahead of a breakout.
You can quickly find the rating for any stock at IBD's website, namely in the stock quotes and IBD Stock Checkup. Various data tables also include the rating. In IBD Weekly, it is found in the stock tables, plus it's in the mini-charts for IBD 50, Stock Spotlight, Sector Leaders and IPO Leaders. Ratings are updated overnight.
In addition, the IBD Stock Screener includes the ability to screen for strong Accumulation/Distribution Ratings.
Keep in mind that this year's stock market volatility — along with a number of failing breakouts and a lack of proper setups — should keep investors on the conservative side. Still, ELF Beauty, Funko and Incyte boast top-notch A/D Ratings and are near buy zones.
Check out IBD's Stock Market Today for daily market commentary, and The Big Picture for more stock market trend analysis.
Stocks To Watch: ELF, Funko, Incyte
ELF Beauty is below a 33.54 buy point in a cup with handle amid a faltering breakout move, according to IBD MarketSmith chart analysis. The cosmetics leader's relative strength line made new highs ahead of the breakout, which is a sign of stock market outperformance. Earnings are due out Wednesday, so a new breakout would carry more risk. The stock was also featured in the most recent Stocks Near A Buy Zone column.
Pop culture lifestyle brand Funko is adding a new handle to a huge cup base that goes back to May 2021. The next buy point is 26.03. The company's earnings are due out Aug. 4.
Biotech leader Incyte has fallen below a cup with handle's 81.63 buy point. Quarterly results are due Aug. 2. The company's volatile earnings track record is a reason to be cautious. Incyte was a recent IBD Stock Of The Day.
Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and stock market news.
