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PVTM Plays

Market technicians claim a good indication that a stock will move up is when price and volume increase together - when they make a tandem move. The Price Volume Tandem Move (PVTM) is a great play to track because it indicates the stock has upward pressure.

For PVTM play you look for stocks that have moved up 25% or more in 5 days or less and have trading volume 100% or more above their normal six-month daily average volume. The potential entry and exit points are simple: you buy at the open following the trigger day and you hold for your preferred durations, consistent with your risk tolerances, financial strategy, and goals.

Potential Reasons for PVTM Plays:

• Insiders moving ahead of the market
• Technical charting patterns or events triggered
• Sympathy for a sector or industry move
• Earnings announcements and analysts upgrades
• News of any kind

Charting Patterns for PVTM Plays

Charting patterns are always significant in any play, but the patterns for PVTM plays are somewhat stealthy. Your first pass evaluation should begin with the three-month chart, and many of the stocks seem to have dubious patters in this periodicity. In fact, many of the best (PVTM) plays in the past have flat, slight up trend, or choppy channeling patterns. Looking at the one-year charts won't inspire many letters home to mom either. The PVTM often acts as the crescendo to a consolidation period.

Don't be afraid that you've entered the bizzaro charting world where everything's backwards - there is one traditional, consistent pattern. When PVTM candidates cross over their 10-day moving average lines, they often take off. This is the litmus test - if a PVTM candidate isn't above it's 10-day moving average line, discard it and find another one. A strong majority of PVTM stocks experience a sustaining pop when they cross their 10-day moving average line.

PVTM Play Statistics

As mentioned previously, some striking trends develop as you back test and track PVTM plays. Some of the most noteworthy trends include: surge in volume, 10-day moving average line crossovers, breakouts, number of days required to achieve a 25% gain, and the returns from the various holding periods.

Swelling volume is also a hallmark of good PVTM plays. The sweet spot seems to be around 150-200% above the six-month daily average volume. Stocks with a volume surge of more than 600% above their six month average tend to be better suited for one-trick pony Peak Plays than PVTMs. The PVTM requires a gestation and incubation period, albeit a short one.

Stocks reaching the 25% gain threshold in one day tend to have a higher failure rate than those taking 2-4 days. Slightly slower and more consistent moves up have shown to help buttress a stock as it climbs.

Historically, more than 90% of the PVTM the examined stocks have experienced a breakout above the 50-day trend. This is consistent with the flat and choppy three-month charts. Flat stocks experiencing 25% short-term move are almost always going to breakout into short-term highs. It's also worth noting that while the PVTMs are breaching 50-day highs, not that many are making new all time highs. In fact, many have some type of long-term resistance looming on the horizon that they must punch through if they are to continue climbing. In a way, this makes many PVTM candidates good value candidates - good, beaten-down stocks beginning to rebound.

A typical PVTM play requires two or three consecutive upside days before the cumulative 25% price threshold is breached. The day in which the 25% price gain threshold is breached is the trigger day. If the chart pattern was attractive, the play dictates a position is to be opened on the following day.

Summary

• The best three-month chart patterns are flat or trending slowly up
• PVTMs have been more sustainable if the 25% move up occurs over 2-4 days
• Volume should be 150 - 200% above the six-month trading average
• Set a tight stop-loss order and trail it along if your position rises