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Volume is a vital component of technical analysis. Prudent investors that incorporate volume into their stock analysis have often benefited several fold. Ideally, healthy stocks will more often tend to rise on higher volume and pullback on lighter volume. Volume is a great proxy for institutional sponsorship. Conversely, high volume declines can be an ominous, as this usually signals distribution and further price deterioration are more likely to follow. Below is a great example of how important it is to study a stock's price and volume patterns on a daily basis.

AnnTaylor Stores Corp. (ANN -$1.21 or -3.01% to $38.99) got clobbered after this week's negative reversal from new all-time high territory. The stock was recently featured on Friday, October 27, 2006 in the CANSLIM.net Mid Day Breakouts Report (read here) as it was approaching its $44.43 pivot point. It failed to actually rally for a new high close with sufficient gains accompanied by volume meeting the +50% above average volume threshold which is continually emphasized in our reports.  It looked like it was on course to do that recently, but it didn't actually make it. In fact, its best close on 10/30/06 came with gains on only average volume. Several worrisome traits have developed since. Its negative reversal from new highs to close the next session with a loss on above average volume, falling back under its pivot point, was a concern. A negative reversal from a new high usually leads to further downside testing. The next day (11/01/06) it gapped down for another considerable loss on even heavier volume. The poor action was a negative sign noted in CANSLIM.net reports to specifically caution investors who may not be familiar with how to interpret the day-to-day action.  

If that was not enough, a second gap lower on 11/02/06 caused it to slice through its 50-day moving average (DMA) line.  Gaps down for considerable losses on high volume are always considered very serious signs of institutional selling pressure. And it continued falling with more high volume declines on Friday, finishing right above its 200 DMA line and nearing its summertime lows. This selection will be dropped from the CANSLIM.net Featured Stocks list due to the fact that it now faces great resistance that makes it an unlikely market leader. 

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