Here’s why distribution days matter
Timothy J. Truebenbach is the
President of True Capital Management and general partner of True Capital
Partners LP, a hedge fund. He uses a disciplined model that trades on the
intermediate-term time frame. For a free trial to Tim’s Nightly Stock Analysis
Report
click here or call
888-484-8220 ext. 1.
It pays to know the direction of the market,
doesn’t it? This information and other investing tidbits are what I always hope
to convey to you in this column. Since our last column, the market has been
busy…busy racking up distribution days. Distribution days are blatant
indications that institutional investor are selling, not buying. These guys
control the dollars and the flow of the dollars control the trend.
At this point, it can no longer be assumed that the market is in a confirmed
uptrend. Therefore, we need to be extremely careful in making new stock
purchases or avoid them altogether. In order for us to gain more confidence in
the market, it would be helpful to see a strong rally on heavy volume. The last
week has produced a consistent decline off new highs, so we may be due for a
bounce. As you watch the bounce, take note of how strong volume appears. Is it
stronger than the previous day? Is it above-average? These are the keys to
whether or not we are resuming the uptrend.
In addition to the market displaying distribution, we have also seen many
leading stocks and sectors of recent months taking hits. Oil, metals and
commodities fit this category along with select other names. Basic Energy
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Superior Well
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provide examples.
Between price and volume and leading stocks, the market does not paint a very
bullish picture right now. Things can change quickly, so please do not get
caught insisting that the market was just fine a couple weeks ago. New names
were setting up in fresh base patterns, such as Google
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had a pivot point established at 450.82, only to succumb to recent selling that
has taken it to its 200-day
moving average.
That is just an example of how quickly things can change: one week it looks like
a buy, the next it is clearly an ‘avoid’. This market’s choppy action has also
suggested that it is tough to time anything. Proper asset allocation has started
to find favor once again, especially as the booming housing market has cooled
off. Toll Brothers
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cooled off!
Hard work and diligence in research will pay off as we keep track of the market
and new leading stocks’ action in the upcoming weeks and months. The market
appears to have entered a correction, and there is no telling exactly how deep
it will be or how long it will last. If you and I exhibit patience, we will soon
find ourselves staring at another uptrend.
Tim Truebenbach