Monday, January 15, 2007

The Novice Bear Tracks Distribution Days

With the market off today I think it is time to add something new to the blog. The market is firing on all cylinders right now and we should be thinking about "tops". Is it possible to time the market? William O'Neil thinks so. All you have to do is look for distribution days. If you get 4 or 5 in the matter of four weeks then a correction/bear market is just around the corner. So what is a distribution day?

According to IBD :
A distribution day occurs when one or more of the major indexes (the
Nasdaq, S&P 500 or Dow industrials) falls more than 0.2% in higher volume
than the previous trading day. When volume spikes sharply higher but the market
fails to make any price progress, that's churning, another sign of distribution.

The chart shown above gives this last market correction as an example. If you read O'Neil's books you will see how this method worked time and time again. I will be keeping track of distribution days on this blog from now on. Just check out the links on the right.

Caveat: I may differ from IBD's distribution count from time to time so please understand that I'm doing my own analysis and not just taking the count from "The Big Picture" column.

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