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While it’s been pretty easy going in the market these last few weeks, my antennae of concern is now raised. So far none of my holdings have triggered any sell rules, which is why I’m alert, but not yet reacting. The concern is the number of distribution days mounting on the major indices, most notably the S&P 500. As cited in today’s IBD, the S&P began the day with a count of 5 distribution days, which is a lot. When the distribution day count reaches 5 to 6 in a 25 day period, it is a sign the current trend is being stressed by significant selling and may be in jeopardy of changing to the downside.
While I have conviction in my current holdings, if the distribution day count increases I will have to respond by trimming back my exposure. If the market begins a new downtrend, 3 out of 4 stocks will follow; including the leaders. Now it is time to prioritize your holdings and be prepared to cut weaker positions. If this trend remains healthy, we shouldn’t see much more distribution. Instead, we should see previous distribution days fall off the count, as they either become too old or the market moves high enough to make them irrelevant. I encourage you to do the research necessary to be prepared either way.
President, MarketSmith Incorporated
Follow Scott O'Neil at Twitter.com/WScottOneil
Great advice. Most of us are looking upward as leaders like INVN and MA are finding support. Having the public looking upward is perhaps just what Danoff needs in order to pare his monster holding in AAPL. However AAPL too is showing tightening on low volume and accumulation higher. I don't see sell signals in the huge leaders like HD, V, ISRG, IBM and KO. KO is getting a little vertical. Perhaps KO will start a spate of climax tops.
Thanks for the comments...I have reduced my exposure to stocks at this time....
If teh market moves back to uptrend, I will look for patterns like tight three weeks
Market uptrend intact. Wouldn't be surprised to see some distribution days fall off the leading indexes soon.
Now that you see the market uptrend intact (including April 2 which seems to be an accumulation day), would you suggest getting back in ?
looks like a lot of names putting in new highs on below average volume- is that a concern?
@rikki: as I interpret Scott's original post and today's comments, he was never "out" of the market. The market conditions of last week and the pileup of distribution days served to put him on notice of a potentially negative market, at least in the short-term. His comment today, "Market uptrend intact" speaks to the strength shown by the indexes and current market leaders - we are in rally mode. I did not sell any securities last week as the market showed distribution, and today's strength has me back on the aggressive side looking to add to my core positions.
@Ryan - Thanks for your reply.
I get that Mr. ONeil was never out of the market. However, I did end up selling 75% of my portfolio in the last 6-7 market sessions. The principle being to protect capital first and foremost. Most of the stocks I gave up, I dont rue. But I ended up selling TSCO and EC also which made good money after I sold. Anyway, I guess Id be even whether I sold the 9 stocks I did or if I didnt. Some dropped marginally, but TSCO and EC would have made up for the drop.
Actually, since Im mostly out, I dont know if "Market Uptrend Intact", implies enough strength to get back in.
hi everybody, am new to M.S., one thing i would like to point out, at quarter end you'll find a lot of selling in some of the better stocks by Mutual Funds. only to buy back like today, even though volume is down mostly, some of the winners like INVN today volume was up, PAY another, i was lucky i bought both Friday.
Maybe Mr ONeil could elaborate further?
These are not my original words, but they are worth repeating. When the market goes into “uptrend under pressure.” Always treat your stocks as individual securities and let the action of each dictate what you do with them. There is no need to start wholesale selling of your portfolio. I much prefer to offensively sell stocks than defensively. Don
I have to agree with Don here on all points.
I prefer to sell when the sellings good rather than wait for a trip down the elevator shaft.
If the broad market starts showing signs of distribution, I wouldn't hold a fire sale and get rid off all of your merchandise. Distribution doesn't mean that the rally is over - its just a clue. If the market still has room to go and you've moved to cash, getting back in can be a challenge - worse you may have sold a monster for no reason at all (the single biggest crime one can commit imo).
FWIW, if the broad market has some distribution building up and I've noticed that recent buys aren't working and that my P&L curve is churning, I'll: hold off on any new buys, sell any stocks showing a loss and trim back oversized positions a bit all in an effort to raise some cash. From there I may raise stops and have a more demanding attitude for performance with the issues I hold. Each stocks action defines its future.
I would also recommend that if you like to carry stocks on margin that those positions be sold into strength and that you don't wait for the market to come in. Margin makes for fuzzy thinking when the blood starts running...
@RyanN @dthomas240 @l: You got it exactly right. The distribution on the indices put me on alert and made me take a closer look at my positions. But each position, judged on its own merit, was holding up. None gave a reason to sell, but I would still like to see some of the distribution days come off the indices.
@rikki My advice would be to be careful of overreacting and making “big steps” in and out of the market. It’s usually best to operate in increments. As for what to do now…there are still plenty of opportunities to re-enter, but be careful not to plunge. Many stocks are forming second stage bases after nice runs over the last 13 weeks. Look for flat bases, and shallow cups. You’ve got to be patient and let the opportunities develop. Buying a stock just to own it, or just because you have cash on hand, is not a good reason. There will always be a spot on the chart where your risk is lower, and your probabilities are higher. Good luck.
Distribution day count now 5 for Nas. Proceed with Caution, leaders still acting relatively well.
Your words I ring true to me, this is the first real uptrend i caught since investing CANSLIM and IBD style. I finally have some good gains but sold way to early, took off my 20+% gains in all my stocks and this market has been running and not allowed me to get back in so I've been patiently waiting for re-entries. I'm not upset that i made a profit this go around, but i realize i have to work on my selling a position once I'm in a better position with a stock. For example, AAPL I sold in the low 500's, live and learn though. I've have been Taking little stabs though, RGR, ALXN, URI just today.
If the market still has room to go and you've moved to cash, getting back in can be a challenge - worse you may have sold a monster for no reason at all (the single biggest crime one can commit imo).
-Call me a criminal, Will add new rule to selling a winning position for next time. I liked O'neil's Explanation on A and B Stocks in one of his recent Webinars. Cleared a couple points up for me.
Check out the Timesaver table on B7 in tonight's IBD: every stock above 96 Composite Rating and almost all of them hit New Highs. That is underlying strength. Let the indexes consolidate, it just gives leading stocks a more powerful jump in the next leg up.
I am still surprised that IBD didn't call a distribution day on the Nasdaq yesterday due to the fact it was down .2% on heavier volume.
@Miamorekarina @Jkaa1078: The NASDAQ distribution day count is still 3. MS charts say 0NDQC was down .2% but it was rounded up. It actually came in just under, at 1.96%. Plus the leaders were acting well yesterday.
Thanks for clarification, my post was also before IBD post for that day. It is nice to see some really good feed back from everyone, it puts everyone in a good postion to learn all we can. Thanks again!
Noticed a drop in number of funds in latest quarter [March 2012] for most top-rated leaders of this latest 15-week uptrend. In some cases like AAPL, CELG, ISRG, PCLN, well below 2011 Q1 or even June 2010. Would expect some profit-taking and repositioning at end of 2011 [re: Q4]. Just curious when a sharp decline in number of funds from a year ago or back even further becomes a concern or even a potential flag to be added to the sell-side for a stock leader. Or does price/volume action trump this. Any thoughts on this?
@withey - Regarding fund ownership, I would think that the biggest of funds are working into and out of multi year positions in large stocks based on the monthly chart and a two - four year bull cycle. Two years for bounces out of deep bear markets and four years for break away bull markets that start after new highs are tested with a mild bear market. These biggest of funds are the heavy's that make all the difference. The four stocks you mentioned are a bit like aircraft carriers with smaller stocks making up each carrier's battle group. I probably should cut back on my History Channel intake. Still at some point Apple will need to come back to home port to swap out the crew. Fidelity's experts that helped make the AAPL run possible may be given commands of their own in the next cycle of market leaders.
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