9/25/12 After the close

[Mike]

The market sold off on higher volume today creating a distribution day on all major indices.
The NASDAQ and S&P distribution count is now 3. Tomorrow the distribution day seen on 8/21/12 falls out of the 25-day lookback window dropping that day from the count so effectively the distribution count is still 2.

By a very slim margin 9/21/2012 missed being labled a stall day, it showed most of the characteristics of a stall day and a different person might call it that. Worse today was that the NASDAQ closed below the 21-day ema giving us an S5 sell signal. AAPL also closed below the 21-day, a line held since June. The exposure is still fully invested with an exposure count of +6.

Early this morning before the housing report I sold NSM at a routine +25% gain target. I sell most positions at 20-25% gain unless they are identified for a longer term hold. It is important to take profits along the way, however if a stock goes up 20% in less than three weeks it will be held for a minimum of 8 weeks and then reevaluated at that point.

I held KORS today even though it showed a possible sell signal (highest down volume since the beginning of the advance). Masking this volume is the 20 million shares coming into the market in a secondary offering. I give the market some time to absorb events like this. Today's KORS volume was more than the 20-million secondary issues plus 50-day average volume so additional sell offs could be telling.

I normally don't become concerned about a topping market until the distribution count gets higher. I do take note that on March 9, 2000 the distribution count was 1. The very next day the NASDAQ made an all-time high of 5132.52 on a day seen as a reversal and a stall day. It has been down hill from there. So distribution is not always obvious on the way to the top. It was the action of leading stocks that told the real story in 2000.

Leading stocks MLNX and UA closed below the 50-day today and FWRD was clearly being sold with institutional volume. Netsuite (N) had a higher volume reversal today. I remain in LNKD, ELLI, KORS, EQM, N, FLT and PII.

[Harry]

... FWRD was clearly being sold with institutional volume.

Hi Mike,

Thank you for your informative posts as always. Curious as to what tools, if any, other than EV that you use to determine institutional selling?

Harry

[Harry]

Mike,

If you have the time, I am interested in your response to my question above.

Thanks,
Harry

[Mike]

Hi Mike,

Thank you for your informative posts as always. Curious as to what tools, if any, other than EV that you use to determine institutional selling?

Harry

Harry,
I do most of my analysis the old fashioned way and use EV to confirm or warn against taking a position when deciding to take a position. FWRD trades in average less than 140K shares per day. 68% of its shares are owned by institutions and another 8% by management. It is hard to conceive that a stock traded 529% of average volume on a big down day without significant institutional involvement.

I use two complementary methods to determine if institutions are accunulating stock. LEV rising while price moving sideways or down is one. The other method is taught by Bill O'Neil. The beginning of a base begins on the first down week after a closing weekly high and runs until the week prior to a breakout week. Looking at each week in the base one-by-one I determine one of four states for each one.

1. Closing up or down on lower volume than the week before.
2. Closing up on higher volume.
3. Closing lower than the week before in the lower 40% of the range on higher volume.
4. Closing lower than the week before in the upper 60% of the range on higher volume

Essentially #1 are don't care weeks, #2 and #4 are positive or support weeks and #3 are negative weeks. Then I do a simple count of #2 weeks and subtract #3 weeks. Buying breakouts of bases with a positive net count produces significantly better results than buying negative net count bases. #4 weeks are not counted but by labeling these support weeks we keep them out of the negative count.

I also do the above procedure on every daily bar and net the counts from both charts. I wrote code in eSignal to automatically label bars to facilitate this analysis.