Three Ways To Find Hot Stocks In A Tepid Market

It’s easy to find hot stocks in a hot market because a rising tide lifts all ships. It’s much harder to find hot stocks when the market for the S&P 500 (NYSE: ARCA) is tepid because investors and their money are more cautious. In this scenario, stocks will generally move sideways within a trading range but this is not true of all issues. There are good stocks and bad stocks for all market conditions, it just takes a little work to root out the truffles from the trash. Today we’re looking at three ways to find hot stocks in a tepid market that work well on an individual basis and very well in conjunction with each other. 

The Market Is Driven By The Sell-Side 

Underlying bid or not, the volatility of the market is driven more by the sell-side than not and that means paying attention to institutional trends can be key to investing success. A stock with high institutional ownership is usually less volatile than other stocks because of the buy-and-hold mentality taken by this group of investors. Stocks with a rising or falling institutional interest often trend in the direction of the institutional sentiment and changes in their purchasing habits can be a signal the market will bottom, top,  or reverse course. And this is true for insider buying as well. Marketbeat.com’s Insider Buying tools include information about individual stocks on their profile pages such as this one for Occidental Petroleum (NYSE: OXY). 

Oxy not only has a high and rising institutional ownership but high-profile buy-and-hold investor Warren  Buffet is behind the movement. Mr. Buffet and Berkshire Hathaway (NYSE: BRK-A) have bought a little more than 20% of the stock over the last 6 months and it was recently approved to purchase up to 50% of the company. That news has the shares up more than 10% from recent support and on track to trend higher over the next few quarters. Another tool you can find on Marketbeat.com is the Top Insider and Institutional Buying Stocks screener which ranks the hottest stocks bought by insiders, major shareholders, and institutions. 

The Analysts Can Drive Stock Prices Too … 

Analysts are another powerful force that can drive the market. When one analyst upgrades or downgrades a stock it can move the needle in regard to price action. When a dozen or more downgrade or upgrade a stock, or if a trend in sentiment develops, it can drive large, sustained moves in the stock’s price. Marketbeat.com not only lists each day’s analysts' activity but tracks the trend in sentiment for each stock. One of the Premium Tools is a screen for the Most Upgraded stocks that can be tuned to target sector, market cap, time frame, sentiment, and consensus rating. 

A screen in late August will turn up Walmart (NYSE: WMT) as the most upgraded stock in the last 30-days and the 2nd most upgraded stock in the last 90-days which makes it a high probability candidate for upward price movement. A closer look at Walmart’s analyst activity, however, will show the sentiment of Moderate Buy slipped over the last year as did the price target. The Marketbeat.com consensus price target is down in the 30, 90, and 365-day comparisons which is putting some downward pressure on the price action despite the recent firming in sentiment. 

Volume Is What Sustains A Market Movement 

Tepid markets are often volatile because they are less liquid than hot markets. Volume is one of the first signals any trader learns about and volume is what brings liquidity. Marketbeat.com’s market tracking data includes screens for stocks making the largest moves as well as those with unusual volume. Turning to my two previous examples, the volume chart of Occidental Petroleum shows trading volume picked up substantially with the onset of Berkshire Hathaway’s buying spree and has remained at those high levels ever since. Walmart, on the other hand, has had no pick up in trading volume and the volume could even be said to confirm resistance at $140 if not downward movement.