Page 1150 - How to Make Money in Stocks Trilogy

Selling Checklist 135

Distribution Days Alert You to Mounting Trouble
When the market is in an uptrend, we watch for “distribution days”—days
of heavy selling in at least one of the major indexes, primarily the Nasdaq,
S&P 500 or Dow Jones Industrial Average (see Big Rock #1, Chapter 3).
If the number of distribution days starts to rise, watch out! That shows
institutional investors are moving to the sidelines, which may mean the cur-
rent uptrend is running out of steam.

If you get 6 distribution days over any 4- to 5-week span,
the general market almost always falls into a correction.

You can easily track the number of distribution days just by checking the
Market Pulse (see examples above). If the count continues to grow, the out-
look will shift from “Confirmed uptrend” to “Uptrend under pressure” and
finally to “Market in correction.” (The number of distribution days needed
to turn the market into a correction may change over time. Regularly read
The Big Picture to stay aware of any adjustments.)
Think about how valuable that 3-stage progression is.
While some markets are more volatile, changes in market trend
typically happen over a few weeks, giving you time to protect your
money.
Earlier, we saw how distribution days mounted in March–April 2012 as
the market rolled over into a correction (Big Rock #1, Chapter 3). We also
noted how shifts in the Market Pulse helped investors avoid any serious
damage when the financial and housing crisis pushed the market into a
severe bear market starting in November 2007 (Big Rock #1, Chapter 3).
Let’s take a closer look at how that latter episode played out—and how you
can use distribution days to help safeguard your portfolio whenever future
downtrends emerge.