10 Signs a Stock is Being Quickly Accumulated (aka a Gold Rush)

Disclaimer: This post does not constitute financial advice. Do your own due diligence before making an investment.

A gold rush is a term from the 1800s. When gold was discovered in a new area, it would lead to a stampede of prospectors. People would trickle in from everywhere. Towns sprung up overnight. Saloons. Stables. Hardware stores. A hurricane of migrants and entrepreneurs.

Men would quit their jobs and uproot their families to become gold miners. They did this because mining for gold was lucrative, and easy to get started at. Striking it rich on a single claim could set them up for life.

Stocks can also do this. And the behavior can be similar. It’s just a little camouflaged because Wall Street doesn’t want you staking any claims in gold rush stocks. The reason for this is a gold rush stock can go up huge in less than a year. Like when Moderna went from $20 to $173. (January 2020 to January 2021.)  

Here are 10 ways to tell if your stock is being accumulated by large funds.

1. Great News Was Just Released

This is what starts the gold rush. It’s a “buy the news” event. Although the jump in stock price could initially be small. If a company is tiny and relatively unknown, then the news might not have as large as impact as you think it should.

This isn’t necessarily because the news is not as great as you thought it was. It’s because nobody has ever heard of your company.

Imagine going to a party and trying to cold sell people on a stock by talking about the recent news. They don’t understand the company as well as you do, so it’s natural for them to be less excited. Your friends are going to want to do some due diligence before investing. So, you shouldn’t get upset when everyone doesn’t freak out at the news as much as you did.

Wall Street loves small unknown companies that release great news. Why? Because hardly anybody buys them.

Most people corelate how good or bad a press release was by how the stock performs. If they see a stock only go up a bit, they will assume the news was mediocre and move on. They stop paying attention and don’t notice as the stock creeps up every day.

If a stock goes up 5% a day for five days after news was released, that’s a gain of 27.63% that can be attributed to the news. If you saw a stock pop 27%, you’d assume the news was great. But if it only goes up 5%, you’d think it was meh. But it’s the same news. There’s nothing wrong with the company you’ve invested in. It’s just that Wall Street controls of the price of stocks.

If your news was unexpected, that’s even better. It means that maybe even the large firms didn’t see it coming. Or maybe it was a binary event they saw as too big a risk. Either way, now the institutions want in.

2. Low Institutional Ownership

Institutions, hedge funds, pension funds, etc. They like to buy stocks and hold them for a long time. Sometimes forever. You can check how many institutions own your stock by clicking on the “holders” section on Yahoo Finance.

For an in-depth look at which institutions are holding how many shares, you can check out sites like WhaleWisdom, or Fintel.

Anything lower than 35% might create a stampede of buying by big firms.

3. Paid Bashers Change Their Message

If you invest in growth companies, you’re probably familiar with paid bashers and fake users. These are employees working for companies hired by Wall Street to fade sentiment. Their job is to make a stock less exciting. Their job is to trick people into selling, or not even investing in the first place.

In a gold rush, the messaging from these paid bashers will often change. Before it was “This company is junk/garbage/a scam,” but that doesn’t work anymore because of the Great News.

Now you’ll see them talking about “pump and dumps.” In a gold rush, stocks will jump quickly. If a stock retreats from its intraday high, paid bashers come out of the woodwork saying, “See we were right. It’s going back down again.”

Of course, they never accurately predict this. They only show up after a stock falls a bit. (Or if they do accurately predict a drop, it’s because they’re calling for one every minute.)

Fading sentiment during a gold rush is important to Wall Street, because they’re trying to buy up as many shares as possible.

You’ll see comments like, “I sold at X.” or “If you’re up X% you should consider selling before it drops.”

The lies from the bears change because narrative of the company has changed.

Imagine there’s a company claiming to have a pill that let’s people breathe underwater. Paid bashers would say that’s impossible. But once it’s been proven to work, they can’t say it’s impossible. They have to come up with new bullshit to discourage you from investing in the company.

Trust the news. Trust the company. Trust your research.

Don’t trust strangers telling you to sell.

Okay, so now the Great News is out, we think institutions are buying, and the paid bashers are panicking. What’s the price and volume telling us?

4. Crazy High Volume

It’s a natural to focus on price rather than volume. Price is what you get if you want to trade your stocks for cash. Price is a temporary number that can be controlled and manipulated. But volume is equally important in a gold rush.

High volume is a great indicator that a fund is accumulating. Take a look at the outstanding shares relative to the institutional ownership.

Say there are only 160 million shares available to the public, and the average daily volume is only 1 million.

Anything over 2 million would be high. Three to 10 million+ would be nuts. What you’re looking for here is sustained high volume. If every day after the Great News was released your stock is doing abnormal volume, that is a major indicator that someone is buying every share available. If a few weeks pass and every day is 5M+ in volume, then institutions are probably buying everything.

Wall Street is buying these shares mostly from ordinary investors. Many people don’t know what to do with a stock when it suddenly goes up 27%. They might have other stocks in their portfolio doing worse. They sell, and institutions buy.

This is called cutting your flowers and watering your weeds.

Don’t do this.

In a gold rush, there is a mad scramble for shares. Once the gold rush is finished, and the institutions have accumulated all they can, then the price will jump big time. During the gold rush, it’s in the institutions’ best interest to manipulate the price so they can accumulate more at a cheaper valuation.

(At the bottom of this article we’ll talk about what the end of a gold rush looks like.)

5. Low Short Volume

A lot of a stock’s daily volume comes from computer trades. Firms like Renaissance Technologies and Millennium Management have algorithms that buy and sell stocks. A lot of this volume is short selling.

Most stocks have a 40-50% daily short volume. You can check your stock’s short volume on sites like this.

The people who do most of the shorting are institutions and hedge funds. So, if you see that your stock has low short volume, then that’s a sign that funds are going long instead of short.

Shorting a stock during a gold rush is insanely risky. One news release could bankrupt you. Gold rush stocks are ones that will keep climbing every month until institutions have bought enough. A lot of the short volume you see on gold rush stocks is just algorithms shorting price spikes. They’ll cover before the day is over.

6. Price Volatility

Gold rush stocks will trade in big ranges. Much larger than they used to.

If you’ve owned this stock for a while, then you’re probably familiar with how the price moves. How it reacts to the overall market, how it reacts to good news, bad news, etc.

If your stock used to trade in a daily range of 1-3%, but now it’s more like 10%, that’s great. That’s fantastic. That’s a sign that Wall Street is losing their ability to manipulate the price. Big banks don’t usually fight each other on stock plays, but during a gold rush it’s every fund for themselves.

Wall Street knows that a gold rush stock is going to go a lot higher. In the next few years it could jump 10 times, 20 times, or even 100 times if the market cap is small enough. They want to own it all.

Volatility will flush the weak hands. If your stock jumps 10%, then drops to flat, that’s enough to trigger the stop-losses on anyone day trading it. Personally, I never use stop-losses. Wall Street is just too skilled at blowing them up.

7. Fewer (if any) Big Dips in Price

Gold rush stocks are going to the Moon. The more the price climbs, the more eyeballs it attracts. Stocks that jump quickly trigger technical indicators which appear on scanners and alert traders. (This is bad for Wall Street.)

You might see some intraday price dips but watch how quickly they get bought up. Wall Street loves shorting good stocks. They call this shaking the tree. Anyone who isn’t holding strong will let go in fear that the stock will keep dropping.

With gold rush stocks you won’t see many red days until the gold rush is over. Accumulation of shares is the top priority.

“Buy everything, no matter what the price.”

Making big returns buying individual stocks is easier if you have less money. Throwing $10,000 at a stock won’t move the price.

But what if you’re BlackRock and you have 10 trillion dollars? You can’t just buy the entire company for whatever the current ask price is. You have to chip away at it. You have to buy just enough every day so the price doesn’t jump too much.

Institutions have no problem averaging up because they have to. Most small investors don’t do this. Instead, they average down. 

But if you suspect your stock is in a gold rush, you should be averaging up. If you knew for a fact it was in a gold rush you’d buy as much as possible. Mortgage the house, sell the car, etc.

Obviously you shouldn’t do this because you can’t know for sure 100% that it’s a gold rush. All we have are indicators that help us make decisions.

8. Market Sells Aren’t Hitting the Bid as Often

Every stock has a bid price and an ask price. For stocks with high volume these numbers can be close together. The bid might be $10.17 and the ask could be $10.18.

If you put in a market sell order, then your stock would probably sell at $10.17.

But during a gold rush it’s a bit different. Spend some time watching how the orders fill. What price are the market sells triggering at?

If it’s a gold rush, then institutions will have their algorithms set to buy everything. This means that if you put your bid in at $10.17, then it might never trigger, even if someone else is selling at market. This is because the institution is buying at $10.175 or $10.1767 or $10.1702.

They’ve programmed a virtual vacuum to suck up every share possible.

9. Options Activity is Higher than Normal

Pay attention to the call options. Watch for higher-than-average volume in strikes that are a few months out. If you see lots of calls being bought at the ask, that’s great. It’s also great if lots of puts are being sold at the bid.

Once the gold rush is finished, the calls will go up in value, and the puts will expire worthless.

Make sure to check back the next day see what the open interest is. Just because 5,000 calls traded in the morning, doesn’t mean that same person didn’t close them out in the afternoon. This would show a volume of 10,000 but wouldn’t affect the open interest. That would be a bad sign because it was just a day trade. Whoever bought the call options wasn’t interested in holding long term.

10. Daily Price Increases of 5% or More

Wall Street has no problem averaging up, whereas small investors can find this difficult. If Joe Sixpack or Jill Yogabutt’s average cost basis is $8, then they’re less unlikely to buy more at $10 or $12. They just end up wishing they bought more at $8.

Averaging up is psychologically difficult. During a gold rush that’s why Wall Street is fine with the stock price creeping up every day. They’re fine paying more if it means you’re buying less.

Somewhere in the back of the small investor’s mind is a festering idea that they might be wrong. This stock could drop back to $8. But unless there’s a market crash, a black swan event, an offering, or an undoing of the Great News, this is impossible. By definition, gold rush stocks are under extreme accumulation. There is a race to buy as many shares as possible.

It’s a race because any person or group must file a disclosure with the SEC if they own more than 5% of a company. They must do this within 10 days. After that the jig is up. If a bank or institution discloses they increased their stake from 2% to 7%, it will be seen by the market as a supreme vote of confidence. That’s when the stock price will skyrocket, because it’s now in Wall Street’s best interest for that to happen.

Gold rush stocks can’t drop down to their previous lows due to basic economics. Demand is up, and supply is dwindling.

Price must rise.

How does a gold rush end?

A gold rush ends when the big dogs are done buying. You’ll see this with their SEC filings and a drop in volume. Even if an institution doesn’t buy over the 5% threshold, they still must report their holdings every quarter with a 13F.

When a big fund takes a big stake in a small company, that’s news. It makes headlines. They talk about it on Bloomberg and CNBC. That’s when the general public feels comfortable buying the stock, and that’s when it’s too late.

If you hear about an investment opportunity on the news, then you already missed out on the big gains. That’s not to say there isn’t still some money to be made, but if you look at the chart then the stock has probably already run up big time from it’s 52-week-low.

Gold rush stocks are fun because if you correctly identify one, it could pay for your retirement. They’re also less risky than binary event stocks since the Great News has already happened.

If you suspect your stock is in a gold rush, hold on tight. There will be temptation and pressure to sell, but you must stay strong. Holding on to a stock that’s going up every day is tough. It requires fortitude.

You can hold on. I believe in you. You were smart enough to identify this stock as a golden goose even though for the last few years it was covered in black oil and dying on a beach in Louisiana.

That doesn’t just make you a good investor, it makes you a champion.

And champions don’t buckle to pressure. They don’t surrender. They don’t retreat. When thugs kick their door down, point a gun in their face and demand they sell, a champion cracks their knuckles and says, “Blow.”

Thanks for reading and good luck with your investments. Don’t forget to follow us on Twitter for more news and in-depth analysis.