Wednesday, October 19, 2011

Are Stocks Being Distributed as the Market Moves Higher? (SPY; DIA; QQQ)

"I can distribute more stock on upticks than I can on down"*
-E.H. Harriman, railroad man and Wall Street pro.

There are many ways to measure A/D, here's one of them.
From MacroStory:
Accumulation or Distribution:
If only investors knew what everyone else was doing. For example are funds loading up on AAPL today into weakness or selling into strength? Has the move since the October 4 “Dexia ramp” been indicative of accumulation by funds into a new bull leg or distribution as shorts are squeezed?
Unless you are “in the know” we have limited resources beyond “feel” to understand how to answer those very important questions. One tool we do have though is the TRIN as defined by the NYSE.
“The Trin measures volatility within the stock market. The Trin represents the relationship between advancing and declining issues by measuring their volume flow. The Trin is commonly used as a short term trading tool.
This formula, like the Trin itself, helps us to descern whether volume is flowing into advancing or declining issues. The Trin will read under 1.0 when advancing stocks are the major source of volume and above 1.0 when declining stocks are the predominant source of volume flow in the market.”
As a point of reference look at the chart of the TRIN versus SPX during the October 2010 through May 2011 rally. It is relatively neutral and indicative of a balance of buying and selling. In other words it does not appear investors were selling into strength but rather accumulating into weakness.


Taking an even closer look, notice the TRIN the past three days. Looks like a lot of distribution into market ramps.
This is not a holy grail nor do I claim it to be. I do find it another piece of anecdotal evidence to get a better sense of what investors are in fact doing as a whole.