Thoughts on Today’s “Distribution”

According to “O’Neil Theory” today was a “Distribution Day” across the indices. That’s a day in which an index is lower by 0.2% or more on volume greater than the previous trading day. The higher volume signals institutions selling to lock in gains during a market uptrend, as opposed to a market that pulls back on lighter volume signaling that key market players are content with their positions and expecting further upside.

O’Neil’s studies have shown that roughly five of these Distribution Days in the span of a few weeks can spell the end of an uptrend and signals market participants to lighten their loads.

But not all distribution days are created equal. While we won’t quibble with the maestro himself today’s distribution was rather mild, with the indices finishing well off their intraday lows, especially the NYSE indices: the S&P 500 and the Dow Jones Industrials.

These indices are especially instructive if you peak behind the curtain at today’s action. NYSE volume picked up considerably, but the volume burst was BUYING not selling.

Technology has sparked the latest phase of the market rally but make no mistake, financials are the truest of market leaders during the impressive uptrend that was launched off the March bottom. They may not have the leadership qualities we look for but there is no denying their technical strength. Today was an impressive display.

Citibank (C) normally trades about 300MM shares. Today, as it surged over 10%, it traded 1.8 Billion, more than sextuple the average and an amazing amount.

Here are some others that shot higher on somewhat less incredible volume totals but significantly higher just the same: AIG 134MM as opposed to 12MM, FRE 52MM vs. 6MM and FNM 115MM vs. 11MM.

Two fisted buying in the financials today accounted for your “distribution” volume.

At least one commentator I follow has noted that technology, and thus the NASDAQ, have been lagging since last Thursday and suggested that should these stocks roll over they will likely take the rest of the market with them. While anything is possible it is far more likely that technology stocks are taking a rest after their remarkable moves, making a bullish sideways correction through time while another leading sector takes the baton. When you see that kind of participation the only rolling over the market is likely to do is over those looking for a top.