Wednesday, July 28, 2010

What Is A Distribution Day?

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A reader asked me today what is a distribution day? O'Neil says that a distribution day is when a market index closes lower on higher volume. Technically, in order for it to count as a distribution day, the index must close at least .2% lower. Anything less than that and it doesn't count. Each day the IBD keeps track of the major indexes - the S&P 500, Dow Jones Industrial, NYSE Composite and the NADSAQ -- and determines what the current outlook is for the market.

When the market is in a confirmed uptrend, or the uptrend is under pressure, this is when you need to be on the look out for the institutionally selling. This shows up when the market closes lower on heavy volume that was a higher than the previous day and is called an IBD distribution day.

It is possible for one index to show distribution and another not. That's why the IBD keeps track for each index. While you can keep track of these days on your own, it's just as easy to subscribe to the IBD and let them keep track of it. It does make sense though to look at each index daily to determine what happened. A distribution day in of itself is not necessarily a bad thing, but when four to seven distribution days add up, it can turn the market. Knowing the market trend is important because you only want to invest in a market that is a confirmed uptrend.

To get a handle on how to determine the overall stock market investing direction, it's also a good idea to watch the IBD TV Market Wrap and read the Big Picture Column. Also refer to the How's The Market page in the Investor's Business Daily.

Good luck on your investing and let me know if you have any questions. We can tackle them together.

Ty

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