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Trading on Volume Reversals

06/10/2005 12:00 am EST


Mark Leibovit

Chief Market Strategist,

Trading expert Mark Leibovit uses a proprietary analytical system called Volume Reversal analysis, which he applies to assessing the overall market, specific sectors, and individual stocks. Here’s a sample of this top-performing trader's latest ideas.

"A volume reversal is a change from a rally day to a reaction day accompanied by an increase of volume. Reversals coming off intermediate lows or highs have greater significance in helping to define those lows or highs and important pivot points in the marketplace. Sector volume reversals show where big money is possibly affecting an entire group of stocks. The same proprietary analysis is given to individual stocks. Here are some of our latest trading ideas based on our Volume Reversal analysis:

"Petrofund Energy Trust (PTF ASE) is a Canadian trust that pays out well on dividends. It averaged about a $0.12 per share monthly dividend in 2004. Petrofund’s primary source of income is from petroleum and natural gas rights and royalties and related property rights and interests located primarily in Western Canada. The trust receives 99% of the net revenue from these properties. The trust may also purchase directly or indirectly securities of oil and gas companies, oil and gas properties, and other related assets. It has bounced sharply higher after finding support at its 200-day moving average. Buy at market with a stop below the March 30 low at 13.40. This is one holding that could provide good income and price appreciation.

"Gerdau Ameristeel (GNA NYSE) is a large minimill steel producer in North America, with annual manufacturing capacity of over 8.4 million tons of mill finished steel products. Its products are generally sold to steel fabricators or directly to a variety of industries, including construction, cellular and electrical transmission, auto, mining, and equipment manufacturing. Gerdau Ameristeel is controlled by Brazilian steelmaker, Gerdau S.A. We believe the stock is making its seven-week cycle low in this area. Steel stocks are very much oversold at this point and GNA looks like a 'coiled spring' ready to bounce back. Buy at market with a stop below the May 17 low of 4.35. Our target is $6.

"WJ Communications (WJCI NASDAQ) is a radio frequency devices company, designing products for both current and next-generation wireless and wireline networks, defense and homeland security systems, and RF identification systems (RFID). The company sells its products principally to distributors and original equipment manufacturers, including their manufacturing subcontractors. The stock has been rattling around its low for two weeks, before closing higher on above average volume. It is also in the vicinity of a low made in October 2004. Momentum indicators are showing a bullish divergence as well. WJCI could take off soon. Buy at market with a stop below the May 25 low of 1.76. Our target is $3.50.

"Discovery Partners International (DPII NASDAQ) engages in the development and provision of libraries of drug-like compounds offering instruments that automate the process of making and storing collections, or libraries of chemical compounds and chemistry services. In addition, the company designs and conducts assays or tests that generate information about the effect of chemical compounds on a drug target. DPI sells its products and services to pharmaceutical and biopharmaceutical companies. The stock is technically bullish, showing high volume after a prolonged decline. We are looking for a solid move to the upside here. There are bullish divergences on momentum indicators as well. Buy at market with a stop below the June 2 low of 2.81. Our target is $4."

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