How To Spot a 100% Winner

It wasn’t long ago that I highlighted Planet Labs as a stock with the potential to blast off. At the time it was sitting at $1.90 per share.

Fast forward to the present and Planet Labs has soared well above $4 per share and is now posting gains of over 100%.

So what was it that revealed the hallmarks of a stock about to pop?

Key Points

• Institutional Accumulation as a Key Signal: Planet Labs exhibited a shift in share price behavior, transitioning from erratic movements to a sustained upward trend. This “character change” suggested institutional accumulation.
• Volume and Price Action on Charts: A breakout in price action was accompanied by higher trading volumes on days the stock rose, signaling bullish momentum. This pattern marked a sharp divergence from prior lackluster price movements.
• Spotting Opportunities Through Volume Spikes: To identify similar opportunities, monitor for significant volume spikes when a stock breaks out above resistance levels. These breakouts often signal the start of a bullish run.

The Breadcrumbs Appeared

When you pay attention to a stock over time it starts to display certain characteristics. For Planet Labs, it had a tendency to disappoint following almost every earnings call. It seemed to lull back and forth in share price without much conviction either way. A sharp selloff one day might be followed by a big buying spree a week later, resulting in a herky-jerky share price.

Then all of a sudden, a character change. The share price went up a few cents one day, and the day after that and the day after that. For an avid follower, it appeared the breadcrumbs were pointing to institutional accumulation.

This wasn’t a case of a stock just going up 2-3 days in a row and correcting and starting over. It was clear that every day it was going up.

Clearly, there weren’t enough sellers to offset the demand and so price was rising. Only big money investors can demand so much of a share price that it really moves the price on such a sustained basis.

What It Looks Like On A Chart

But what if you don’t look at a chart every day and can’t detect right away from instinct or history that the pattern has changed.

You don’t need to overthink it too much. In the box on the left, you can see so-so price action with little conviction. The stock is bouncing about and it seems to be sold almost as often as it’s bought.

In the chart on the right, things really take a turn for the bulls. The volume starts to increase, and more particularly the days when the share price rises is accompanied by higher volume than the days on which it sells off.

You can also see just how fast institutional accumulation leads to a share price ramp. In a matter of a month or so, the share price rose by a full 100% and kept going.

So How Can You Find These Opportunities?

Look for days when volume really spikes on a share price breakout above a former resistance level as occurred with Planet Labs. That’s the day to pounce. And then you can ride the wave higher until a correction below a key technical level, for example the 10-day moving average.