Distribution is the Better Part of Valor

Winter may have a trick or two left, but it's going to be 50 degrees plus over the next two days in the Boston area and that makes winter much easier to deal with.

Distribution is the Better Part of Valor
Note: I sold KFN (-2%) and BCR (+2%) today for changes in my trading account.

Distribution days are one of those market observations than can have hard, set rules but you also need to allow for a little wiggle room. Investopedia tells us that distribution is:
"When trading volume is higher than that of the previous day without any price appreciation."
Simple enough.

On any given day every stock that is bought is sold and vice versa. Price is used to gauge the desire of one side or the other to move a security. Aggressive buyers will push bids up and prices follow. Sellers looking for an exit will take less and less just to off load the position. Volume tells us how many are in the active mode for a stock.

I was thinking about distribution today as it relates to a stock I missed buying, and one I currently hold. Joe Fahmy offered on Twitter that the Nasdaq had it's second day of distribution selling since January 1st today. Here is a chart of the QQQ which shows the two days very clearly and follow the defined rules (click any chart for larger view):

There was a smaller one on January 16, but the overall volume was low. The days of February 16 and February 10 were followed by solid moves up, so there is the chance there is not a severe correction at hand.

The stock I had in mind was a name I was pissed I missed a break out on a few days ago but it was an earnings deal so that's how it goes. This stock will not show the classical distribution rules in play, but tell me this is not an unwind of shares steady and strong over the course of days. SMG:

You can see the last 6 days have now eclipsed the accumulation over 5 days leading up and into the earnings report. The stock has even dropped out of the ascending triangle that made the setup attractive in the first place. Yet only two technical distribution days over the last 7.

Looking over my open 3 positions (AREX, BANR, WTS) I am most concerned that WTS is at a critical junction in the distribution debate. Take a look:

Why didn't I sell if I had qualms about the action? The 20MDA is coming into play tomorrow as possible support. The selling today was heavier and may signal a near term bottom. I also wanted to be in the stock as this plays out so I can react to it. Tomorrow's session is my debate ender.

When you start to see signs of distribution, remember that discretion is the better part of valor. (I played with that line for the title, obviously)

Have a good night.