Unmasking Generals With Weekly Charts

The Generals hide their battle plans when they launch a campaign. The institutions spread out their orders over days and weeks when they accumulate a position. That's why I run my target stocks through weekly as well as daily charts. 

Clever trading sometimes can mask the heavy buying of deep-pocket institutions like mutual funds and insurers. But aggregating price changes and volume levels on a weekly basis can help you see through this camouflage. 

AFLAC (AFL | Quote | Chart | News | PowerRating), the largest supplemental health insurer in the U.S. and Japan, Tuesday reported operating net of 59 cents a share in the second quarter vs. 47 cents a year ago. The results came in a penny above estimates, according to First Call/Thomson Financial.

On a daily chart, the AFLEC shares have traced a nice correction-recovery pattern, but the volume clues appear mixed. We don't see a predominance of accumulation days in which the stock forged ahead on an increase in volume. Instead, you also can see opposing distribution days, sessions of a declining prices on rising volume.

Now check out the following weekly chart.

Notice how the accumulation weeks (see green arrows) outnumber the distribution weeks (marked by red arrows) since the stock came off the lows five to two. You could even argue that the last distribution week, ending Friday June 23, shows signs of accumulation within the down move. The stock ended in the upper half of the range and close to the prior week close.

This does not mean that I'd ignore the distributional signs in the daily chart. To stack the odds in your favor, I'd insist on strong dailiy volume on any breakouts, such as a price move above the most resistance point, AFLAC's intraday high of 52 on July 14 (see Point A on the daily chart).

All stocks, of course, are speculative. On any trade, be sure to protect yourself by setting an initial stop where you will sell your buy or cover your short to cap your losses in case a position turns against you.

For more on using weekly charts, check out my tutorial, Using Weekly Charts to Spot Accumulation.