In early April we discussed the academic article “Return Predictability Following Large Price Changes and Information Releases” by Mahesh Pritamani and Vijay Singal.  The article highlighted that momentum trading of fundamental events was successful contingent upon high volume.  Click here for my summary of the article.

Today we construct a scan that helps to find stocks that may be attractive in light of Pritamani and Singal’s research.

In order to make it to our list, the stock has to be reasonably tradable.  Thus, we require some liquidity: 100,000 shares traded per day, on average.

• MAV20 > 100000

Next, we require the high volume, as in Pritamani and Singal (2001).  Specifically, we want twice the normal volume.

• In SwingTracker, this translates to:  VOLUME > MAV20 * 2

We require positive short-term momentum.  We use the directional indicators and the 1-day change as proxy for this.

• PDI > MDI
• CLOSE/CLOSE1 – 1 > 0.05

Finally, we require an exceptionally strong intra-day trend, as calculated by how much of the intra-day volatility translated into upwards movement.

• (CLOSE-OPEN)/(HIGH-LOW) > 0.75

Once completed, the screen should look like this:

SwingTracker
MrSwings Real-Time Stock Charts RISK-FREE TRIAL featuring one-click access to Larry Swing's profit-generating indicators - Force Index, EquiVolume, True Strength Index

The results:

Of these stocks, we particularly like:

MUSE

• Fundamental catalyst: Analyst recommendation (upgrade)
• Technicals:
  • Positive MACD
  • Extremely large volume spike
  • ADX relatively high
  • Bull flag breakout
  • Runaway gap

INNO

• Fundamental catalyst: None
• Technicals:
  • Positive MACD
  • Extremely large volume spike
  • Symmetrical triangle breakout