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Interesting take from Russell tonight.

Same finding as what ChicagoBears have been saying.

 

"Every stock market student knows that when the market declines on rising volume, this is bearish action. Investor's Business Daily (IBD) call such days "distribution days." IBD has codified these distribution days. When five or more distribution days occur within a period of two weeks, IBD says that's usually enough negative action to halt a rally.

 

IBD posts the number of distribution days over the most recent two weeks in each issue of its daily newspaper. The latest score shows a very high number of distribution days -- 8 for the S&P 500, 7 for the Dow, 6 for the NYSE and 5 for the NASDAQ. Notes IBD, "four recent distribution days show clear signs of institutional selling."

 

http://ww1.dowtheoryletters.com/

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A question for the board: it is now almost a year since the deepest gap in the deflation panic last fall. People who bought, say, mining stocks then, are up 3-4x in many cases. I have a number of holdings that I plan to sell in a few weeks, once the long-term capital gains time interval has elapsed. The rate differential is so great that it would pay me to defer selling them even if the items fell 40-50% in the next few weeks, i.e., the plane is on auto-pilot and the bombs are queued for release.

 

Do you think there are enough people similarly situated that there will be macroscopic pressure on the markets starting in early November?

 

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Uh. Why don't you buy puts to hedge your position instead, if you like their long-term prospects? :unsure:

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Uh. Why don't you buy puts to hedge your position instead, if you like their long-term prospects? :unsure:

 

I do like them long term, but I need to raise some cash for family obligations.

 

I simply wondered whether any here had experience with anniversaries of dips. The dip one year ago had the most amazing step functions at both sides that I can recall.

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It's idiotic to call an advance on declining volume a distribution day. Every day is a distribution day. That's Wall Street's business. Think of it as a big warehouse, with loading docks on one street for the bulk product coming in in big semi trailers. And loading docks on the other side for the local delivery trucks to take the stuff out in smaller pallets on the other street.

 

Every day.

 

What rising prices on lower volume tells you is that there are fewer buyers and they are running out of money. Prices are just moving higher on the momentum of the expectation that they will move higher. But meanwhile the warehouse is starting to bulge. They are getting overstocked, and will have to mark it down soon to move it out.

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Out for a few beers with veteran prop trader from well-known bank. Their opinion:

 

-inflation is only way out of US debt problem - gonna happen

-not that ST bearish, but if stock market goes higher now, will take more time to grind upwards

-any compensation restrictions with teeth will result in "JP Morgan Antigua" or similar

 

Bartender overheard us & chipped in: "if people really knew what was happening there'd be a revolt." Could tell it wasn't that informed, but was said with conviction. That was the creepy part.

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Russell has noticed it too. Kudos! I like his work. Please consider my quick and dirty IBD methodology, which is as much an art as a skill (meaning, it comes from some practice, not just bean counting)

 

Don't look at the days where volume falls - its a coin toss to interpret. Regardless of whether the price goes up or down that day, when the volume falls from the previous day, you don't necessarily know if buyers or sellers have the momentum.

 

Look at the days when volume rises from the previous day. That indicates momentum. Count the days on a rolling 4 week period. Are there more accumulation days or distribution days? Which are more recent? Any time there are more days than the weeks, call the momentum in that direction if it outnumbers the other side. For example, any time you can see 5 days of accumulation (or distribution) in 4 weeks, or 4 days in 3 weeks, or 3 days in 2 weeks, or combinations (5 in 4 and 3 in 2 weeks), then there's the momentum.

 

Tops are very hard to spot. The selling starts while the markets are still moving higher. By the price action alone, it looks healthy. But by filtering the days of falling volume out, and ignoring them, and focusing on the days where volume rises, the momentum becomes apparent. Its been a real tug-of-war up until last week. But since Friday, we've had 3 distribution days and no (i.e. Zero) days of accumulation, even though the markets closed at new highs on Monday.

 

Once enough investors pick-up on what's going on (like Russell), the selling should turn into a cascade. Think of a top as the smart investors seeing the smoke and tip-toeing to the exits before everyone in theatre realizes there is a fire, at which time the stampede starts.

 

Please recognize that calling a top because of this analysis is not guaranteed. There is nothing that says buyers couldn't jump back into the picture tomorrow and ramp things even higher (on rising volumes, of course). Once you see the distribution gaining momentum, though, it serves to form a theory. Subsequent days either confirm or negate that theory.

 

I think the stampede could start any time. At the very least, the sellers have the momentum at this point in time. Russell has the counts right, and in my experience, 6-7-8 distrbution days while the markets are still making new highs is extremelly rare. Most corrections begin after 5 distribution days over 4 weeks. It should not be long now before this fire is spotted and everyone starts running. Either that, or I'm about to get my a$$ served on a platter. We'll see.

 

(please, no offense to anyone or any other school of thought is intended here)

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It's idiotic to call an advance on declining volume a distribution day. Every day is a distribution day. That's Wall Street's business. Think of it as a big warehouse, with loading docks on one street for the bulk product coming in in big semi trailers. And loading docks on the other side for the local delivery trucks to take the stuff out in smaller pallets on the other street.

 

Every day.

 

What rising prices on lower volume tells you is that there are fewer buyers and they are running out of money. Prices are just moving higher on the momentum of the expectation that they will move higher. But meanwhile the warehouse is starting to bulge. They are getting overstocked, and will have to mark it down soon to move it out.

 

That is truly brilliant. A keeper. perhaps the wisest observation on the markets I have read in a long time - and I read a lot!! Thanks.

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