More Distribution taking Place in the Dow 30

It looks like the big money has been unloading shares throughout this rally, and I think the market may be gearing up to make new lows. I last posted about the Dow here.

On the chart above, notice that over the past month, there have been 6 distribution days in this weak rally. William O'Neil explains that this sort of behavior normally precedes a market decline, as it indicates that institutional investors (who create volume) are selling. I think it's important to note that this distribution has occured in a fairly small price range, as this shows that these sellers have been capping the bulls strength. The last time I noticed this sort of distribution was at the beginning of the May-->July downtrend.

Also, notice the head and shoulders topping pattern. I would consider shorting on a daily close below the neckline on higher volume, with a stop above the recent high.


Anonymous said...

Do you see this only in DJ or also other indices? When I look at the DJ chart on Stockcharts.com, I do not see the 6 distribution days as you have on your chart. I wonder why a discrepancy in volume could arise? For example on 8/29 the vol data is 542.49 while that for 8/28 is 594.63 mill, which therefore does not make 8/29 a distribution day as per the definition.

Any light you can shed on this would be helpful.

Narayana said...

Hi Anonymous,

I see what you mean--I do not know why the volume data is different. However, I looked at SPY and QQQQ and saw 5 distribution days on both of those as well. It'll be interesting to see if we get a strong close below the H&S trendline.