64 replies to this topic

[fwsnkjv]

Hi Esther, Let me give you my take. I also have followed IBD for about 15 years, and I believe it is a highly reliable method. I use a combination of IBD and only a couple of other items for my investing. Distribution days are those where the big indexes trade lower than a previous day on higher volume. That said, we can't apply it universally. For example, if we get a down day on slightly higher volume that comes after a low volume "holiday shortened session," that may not qualify. We also have to take the option expiration days with a grain of salt sometimes. On those days, you really need to see huge volume on a sell-off in order to be called distribution, because they are usually higher than normal anyway. You normally should see higher volume down days to be called distribution, and you should be at close to average daily volume on the day before the distribution day for the best signals. The daily big picture in IBD lately has had some very cloudy information for the bulls. The problem with the current rally is that there are not really that many leading stocks breaking out. The quality of a rally needs to be confirmed with quality stocks (high RS & EPS) going on to new highs and breaking out. This confirmation, though, does not affect the buying decision that Charles is making, as he is doing indexes, but it applies to those that are looking at buying individual stocks. The correction we just had was very short as well. Most decent corrections will take a few more weeks to play out, and this point has been highlighted in the paper several times. I hope this helps. Frank

[tuffy88]

esther, A distribution day, according to IBD, is a day where a major index drops in price from the previous day by at least- 0.2% (2/10th of 1%) along with an increase in volume from the previous day. 4 or 5 distribution days in a 4 week period are enough to end a rally in an uptrending market & send the market into a downtrend. Charles

[esther231]

I wasn't sure if the indices had to fall by a certain amount or if the volume had to increase by a certain amount. It's clearer now to me. Thanks to both of you.

[tuffy88]

I agree with everything Frank posted above. He said it better than I did. One of the things I don't like about the current rally is the lack of breakouts by leading stocks and low volume on advances. If this rally really gets moving both of those things will change. Leading stocks will start to break out and volume will increase on advances. Charles

[tuffy88]

Nasdaq Composit at 6 year highs. NYSE Composit at all time highs. S&P500 at mult-year highs. Transports & Utilities at all time highs. Last week sure seems like it was a great week for stocks. But there were 3 distribution days last week on the Nasdaq Composite. And the volume was not really impressive Friday on the breakout to new highs for many indexes. And the IBD100 (leading growth stocks) has lagged since the latest follow through day. The market seems to be turning to big caps and value. This is shown in the status report below showing SPY type stocks outperforming the Nasdaq stocks. All this a little unusual for a market breaking out to new highs. So the reality (using my method) is that we now have 4 distribution days on the Nasdaq & 2 on the S&P500 in the last 4 weeks. 5 distribution days in 4 weeks is usually a signal to exit the position. Which would mean 1 more distribution day and would signal the end of the uptrend and out of the current trade. Still the 3 distribution days last week were all barely so. On Thuresday only off 7 points (0.021% on a declinining volume barely over the prior day). If the 5th distribution day within 4 weeks is a big one with heavy volume & sharply lower prices(which distribution days usually are) I will exit the trading positions. If another one like Thuresday's will wait for the 6th distribution day to exit. Not sure how IBD will call it in the Big Pictire until it happens. There is some subjectivity in this method. The status of my trade as of yesterday's close. 1st purchase of QQQ up 2.80% 2nd purchase of QQQ up 2.75% 1st purchase of SPY's up 3.91% 2nd purchase of SPY's up 3.54% Charles

[fwsnkjv]

Charles, I think you are correct to be suspicious for both the distribution days and the odd characteristics of indexes breaking out to new highs. I agree that one or two more days of high volume down will require close scrutiny. One thing I did notice when we had the bear phase that began in 2000, was that my value fund at that time, which was Oakmark Select, just kept right on plowing higher while all the go-go funds were getting clobbered. So I guess there is always a bull somewhere. One thing we need to watch is the earlier dist days. They may drop off as we go forward. I would have to look at the earliest one to see exactly when it happened, and I also agree that some of them were kind of borderline events. I am still long in my IRA accounts. Frank

[tuffy88]

I don't have the paper here at home now, but I think the 1st distribution day will go off next week. Have to check to be sure, but I think Monday or Tuesday. The other 3 though will have to wait 3 to 3&1/2 weeks. Will just have to see what future developments are. The globex seems mixed tonight but Asian markets are mostly up. Charles

[tuffy88]

Yesterday was a solid distribution day across the board. This morning there are 4 distribution days on the Nasdaq Composit & the NYSE Composit & 2 distribution days on the S&P500 and the Dow Industrials in the last 4 weeks. One of the distribution days on Nasdaq 2 weeks ago I still consider suspect. Present status of my trades as of yesterday's closing. 1st purchase of QQQQ up 4.07%. 2nd purchasr of QQQQ up 4.02%. 1st purchase of SPY up 3.68%. 2nd purchase of SPY up 3.31%. Now more watching & waiting. Charles

[esther231]

Thanks for the update.

[tuffy88]

Very brief update: Yesterday was a big down day accross the markets(except bonds). It was a distribution day for the Nasdaq, but not for the S&P 500 or the NYSE composit.Seemed to be a touch of panic in the air(my opinion, not IBD's) but no big institionalal selling. Of course whether it was a top only the future will tell. never try to guess. But yesterday was not a signal to exit the market for me. 4 distribution days for Nasdaq, 4 distribution days for the NYSE composit, 2 distribution day for the S&P500. In the last 4 weeks. Statas of my latest trade as of 15 minuets ago. 1st purchase of QQQQ's up +4.84% 2nd purchase of OOOO's up +4.79% 1st purchase of SPY's up +4.87% 2nd purchase of SPY's up +4.50% My wife & I will be leaving on a 12 day cruise to the Baltics on the Norwegian Dream on Thuresday, May 17, 2007. Flying to Dover, England and then going through the Kiel Canal to Berlin, Germany, Tallin, Estonia, St. Petersburg, Russia, Helsinki, Finland, Stockholm, Sweden Copenhagen, Denmark then back to Dover, England. Then back to Chicago. Will monitor my position in trading account from the internet cafe on the Dream each morning. If exit is needed will call my son and he will execute the trade for me. Don't quite trust the internet from the Baltic. My son is a professional. A fee only financial planner associated with DFA. He wil exit the trade & post results here if that becomes necessary. Hope not, but who knows. Charles