Saturday, July 24, 2010

IBD Distribution Day

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The current market outlook is market in confirmed uptrend. That means that at the close of the market each day I am looking for an IBD distribution day. Distribution days are when the market closes lower on higher volume. This means that the big money is flowing out of stocks for that particular day. Put a string of them together over a few week period of time and IBD will change the market direction. At this point, we have two distribution days on each index - the S&P 500, the Dow, the NYSE and the NASDAQ.

I recommend that you watch these indexes every day based on the advice of William O'Neil's CANSLIM strategy. If you want to get in the habit of keeping track of distribution days, it might not be a bad idea. If, however, you are a subscriber to the IBD, they keep track of it for you. I personally like to figure out what I thought the market did for the day and then verify it with the Big Picture column and the IBD Market Outlook.

During a market uptrend, the focus each day on the market is to pick up signs of selling from the institutions whose demand drives the stock market. When they exit the market, it brings stock prices down. This is why distribution days are so critical to determining market direction.

Your goal is follow the trend and to do what the big money does and not what it says. The current outlook column in the market pulse will help you do that. Your assignment right now is watch the market each day and see what it does. If it falls in heavy volume, then you know that's a red flag.

Whether you pay attention to the IBD method of determining market direction or use another method, the main thing is that you have a method. Either way, you can spot selling by watching for days of distribution or selling.

Good luck with your stock market investing program.

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