The seven signs · Part 2: Is the market noticing?
A strong business is necessary but not sufficient. The next four signs check whether the market is starting to notice — through volume patterns, relative strength, institutional buying, and the broader trend. Then we synthesize all seven into a single reference you can return to for years.
Recap: where we are
In Lesson 19, we covered signs 1-3:
- Sign 1 — Recent profit growth ≥ 25% year-over-year
- Sign 2 — Multi-year track record of steady annual growth
- Sign 3 — Something genuinely new explains the growth
If those three pass, you've found a strong underlying business. But the question remains: is the market noticing yet? A strong business that everyone already knows about may already be priced for perfection. A strong business that's only starting to be noticed is the genuine opportunity.
The supply of stock is fixed in the short term. The demand is what changes prices. Three signals tell you demand is genuinely rising:
- Buybacks — the company itself is buying back its own shares. The signal: management thinks the stock is undervalued.
- Insider buying — promoters or senior management are buying in their personal accounts. They have the most information; their actions are revealing.
- Volume rising on up days — when the stock goes up, more shares are being traded; when it goes down, volume falls. This pattern shows real buying interest, not noise.
Watch out for the opposite: heavy promoter selling, low volume on price rises, or unusual selling spikes. These are warning signs even if the business is strong.
- Search company news for "buyback announcement"
- On screener.in, check shareholding pattern over the last 4-8 quarters
- Look for promoter holding stable or increasing (not decreasing)
- Watch volume patterns on a daily chart for 2-3 months
This connects back to Lesson 15 — and it's the most CAN SLIM-specific of all seven signs. A leader, in the tradition of Minervini, Ryan, and IBD, is the stock showing the most relative strength right now — not the biggest company in the sector. Past dominance does not predict future leadership. Relative strength does.
Concretely: compare the stock's percentage move over the last 6–12 months to (a) its sector peers and (b) the Nifty. If the stock has outperformed both, it's showing positive relative strength. If it has held up better than its peers during a recent correction, the signal is even stronger.
This is the sign that tells you institutions are quietly accumulating. Big buyers don't reveal themselves during good times — they reveal themselves during corrections, when their preferred names refuse to fall as much as the broader market. The stocks that hold up best in the worst times become the leaders of the next rally.
- On screener.in, look at the stock's 6-month and 12-month percentage change
- Compare to the Nifty's percentage change over the same periods
- Compare to the same percentage change for 3–5 sector peers
- You want the stock to be outperforming both the index and its sector
- Bonus signal: if there was a recent market correction, check whether the stock fell less than the index. That's the strongest signal of institutional accumulation.
Big institutions — Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs like mutual funds and insurance) — have research teams, deep access, and can move billions of rupees. When they're collectively increasing their stake quarter after quarter, that's a strong endorsement.
The reverse is also a signal. If institutions are exiting, even a strong-looking business deserves more scrutiny — they may know something you don't.
- On screener.in, scroll to shareholding pattern
- Look at FII and DII percentages across 4-8 quarters
- You want steady or rising institutional holding
- Sharp falls (especially over consecutive quarters) are red flags
Even the best stock struggles when the broader market is in a serious downtrend. Confirm that Sensex and Nifty 50 are in a healthy uptrend before committing money to individual stocks.
This isn't market timing in the predictive sense. It's just acknowledging that fighting the broader trend with individual stock picks is harder than working with it. When the market is in a confirmed downtrend, even strong businesses can fall 30-40%. Patience during such periods often pays.
- Open Sensex and Nifty 50 charts (any timeframe — 1 year is fine)
- Are they making higher highs and higher lows? = Uptrend
- Are they making lower highs and lower lows? = Downtrend
- Sideways or unclear? Be more cautious with new positions
The framework, in one place
Print this. Save it. Return to it before every stock decision for the rest of your investing life.
- 1Recent profit growth — Quarterly profit ≥ 25% above same quarter last year.
- 2Multi-year track record — Steady annual profit growth over 3-5 years.
- 3Something genuinely new — A specific change explaining the growth.
- 4Supply and demand — Buybacks, insider buying, volume rising on up days.
- 5Leader by relative strength — Outperforming the sector and the index, especially during corrections.
- 6Institutional buying — FIIs and DIIs increasing stake.
- 7Broader market trend — Sensex and Nifty in healthy uptrend.
Using all seven together
Few stocks pass all seven signs perfectly. You're looking for stocks that pass 5-6 signs strongly, with the remaining 1-2 not actively failing. A stock that passes 7/7 is rare — when you find one, pay close attention.
What if a stock passes signs 1-3 but fails 4-7? Often it's just early. The market hasn't noticed yet. This can be a great opportunity — but you'll need patience. The price may not move for months.
What if a stock passes signs 4-7 but fails 1-3? This is the dangerous setup. The market is buying a story, not a business. These stocks can rise for a while on momentum, then crash hard when reality catches up. Don't be fooled by stocks where the market noticing is the only thing the seven signs are picking up.Asian Paints, Pidilite, Bajaj Finance, Eicher Motors, HDFC Bank, Titan — when patient investors began noticing them, most of the seven signs were already aligning. The pattern repeats across decades and countries.
Pick one company you've heard about. Run all seven signs on it. Use screener.in for the data. Don't worry if you can't decide whether each sign clearly passes or fails — that's part of the practice. Repeating this exercise on 10-15 companies will train your eye faster than any video course.
- The complete Seven Signs framework — all seven, in one reference
- Sign 4 — supply and demand signals (buybacks, insider buying, volume)
- Sign 5 — relative strength leadership (CAN SLIM's L)
- Sign 6 — institutional buying patterns
- Sign 7 — broader market trend confirmation
- The discipline of using all seven together — and what to do when some fail