| How to spot when the market hits a top |
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| Because
three out of four stocks, regardless of how "good" they are, will
eventually follow the trend of the |
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general market, it is important to
learn how to spot when the
market is hitting a top |
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| After
four or five days of distribution, the general market will normally turn down |
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| Using this
approach it is fairly easy to spot the top in the bull
market |
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| Distribution |
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| 1 |
Index moves down on
increased volume, or |
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| 2 |
a day's attempted advance stalling [very
little change in price] on greater volume than the day before |
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| 3 |
Also, when the index stalls and
closes up slightly for the
day, but the net gain is significantly less |
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than the net gain on the prior two
days of big increases in the index |
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| 4 |
Also, it closes in the lower part of that day's spread
[from high to low] on enormous volume |
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i.e., the index moves up much less
than the day before, while increased large volume occurs |
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| Four days
of distribution, if correctly spotted over a two- or
three-week period, are often enough to turn |
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a previously advancing market into a
decline |
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| Sometimes,
distribution could be spread over six or seven weeks if the market attempts
to rally back to new highs |
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| When
I see four clear distribution days, I will start looking for stocks that are
giving indications |
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they should be sold or trimmed back |
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| I check this every day because I don't
want to miss the few days when these distribution signals may |
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suddenly appear with no prior
warning |
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To be naïve, unaware, uninformed, or
not on the job almost always costs you money |
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| Once you
spot four or five distribution days, you should stop all
buying and even cut
back your positions |
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| From some
later point, the market index will always attempt to rebound and turn upward
- this we call a rally |
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| Don't
get drawn into the first or second day of any rally,
after you have seen four or five definite distribution days |
| It could be
a false rally |
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| The market
is now turning into a downtrend,
and you don't want to buy anything until the market signals a |
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clear
and powerful "follow-through" day, which usually occurs between the
fourth and seventh day |
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of an attempted rally |
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| There is
no reason for individual investors to be fully invested in stocks from that
top to the ultimate market bottom |
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if they had studied and used this
method |
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Markets never go down by accident |
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The information and signals are
always there |
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Sadly, ignorance, ego, pride,
wishful thinking, vacillation and unrealistic hoping usually prevent people |
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from objectively analyzing the
market indices and making sell decisions correctly |
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| This is how
you analyze the law of supply and demand at work each day in this market
index |
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It's detailed |
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It's important |
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If you don't understand how to
interpret this market action, you'll just lose a lot more money because |
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you've missed a clear seling
opportunity |
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| Anyone
observing these eight distribution days would have sold some stock |
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When the next attempted rally or two
failed, they would have sold some more |
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| Every
rally attempt failed until the first valid "follow-through" day
occurred on the fourth-through-seventh |
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day of the attempted rally |
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At that time, it is once again safe to re-enter the market and begin to buy |
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