Louetta's Lore

[DSteckler]

Dave,
Did you happen to read my post on the play. I'm looking for a pullback before any entry. And saying that the chart looks great was more likely to mean that it does look great by what it has been doing wouldn't you say not to be confused with let's buy it at the open on Tuesday. Wouldn't you agree that it would make a nice setup on any pullback to $14/13.50 range? It does look like the momentum is pointing up with consideration given to watching for normal consolidations after it runs up a bit. Isn't that what stocks in uptrends do? I do agree with you that at this point it wouldn't be feasible to buy before some consolidation. I don't have the raw data for Thursday but from looking at the 15 min. chart it looks like it closed up which wouldn't necessarily make it an accumulation day but definitely not a distribution day either.

I didn't see your post, Ski. I'm starting to wonder if there isn't board troubles because your post definately wasn't there at the time I made my post.

I disagree with your contention that Thursday wasn't a distribution day. It was.

Barring an unexpected news release (e.g., selloff caused by the CEO going down in a plane crash), days with a significant price drop are not distribution days from the institutional player POV. In fact, at times these are accumulation days.

Huh?

Distribution days are days with heavy volume where the stock makes little or no gains, e.g., 8/31 on HMSY. The institutional investors are selling off and small investors are hungrily snapping up those shares. The market makers keep the bids up so as to help the institutions exit their positions at as high a price as possible.

When you see a stock pulling back sharply on heavy volume (again, barring unexpected news), after the first day or two what you're seeing is institutions waiting to slowly start accumulating the shares. Note that I'm not talking about a stock in a sustained, multi-week downtrend; I'm referring to sharp 3 - 5 day selloffs. Accumulation days tend to be the lighter than average volume days after a sharp pullback.

In an uptrend you frequently see overbought stocks sell off until they pull back to the 20-day EMA. IOW, distribution is followed by a selloff that stabilizes at the EMA, where you may start to see accumulation. You'll also see short covering at the EMA, however - volume is the key to distinguishing short covering from accumulation days. Heavy volume at the EMA tends to be short covering while a few days of bouncing along the EMA on light to average volume tends to be accumulation.

On HMSY, note the accumulation days between 7/11 and 7/18, when the stock pulled back to the 20-day EMA on below average volume. After the institutional investors finished loading up, 7/19 was a nice up day and the start of the next leg higher.

[skiracer]

I didn't see your post, Ski. I'm starting to wonder if there isn't board troubles because your post definately wasn't there at the time I made my post.

I disagree with your contention that Thursday wasn't a distribution day. It was.

Barring an unexpected news release (e.g., selloff caused by the CEO going down in a plane crash), days with a significant price drop are not distribution days from the institutional player POV. In fact, at times these are accumulation days.

Huh?

Distribution days are days with heavy volume where the stock makes little or no gains, e.g., 8/31 on HMSY. The institutional investors are selling off and small investors are hungrily snapping up those shares. The market makers keep the bids up so as to help the institutions exit their positions at as high a price as possible.

When you see a stock pulling back sharply on heavy volume (again, barring unexpected news), after the first day or two what you're seeing is institutions waiting to slowly start accumulating the shares. Note that I'm not talking about a stock in a sustained, multi-week downtrend; I'm referring to sharp 3 - 5 day selloffs. Accumulation days tend to be the lighter than average volume days after a sharp pullback.

In an uptrend you frequently see overbought stocks sell off until they pull back to the 20-day EMA. IOW, distribution is followed by a selloff that stabilizes at the EMA, where you may start to see accumulation. You'll also see short covering at the EMA, however - volume is the key to distinguishing short covering from accumulation days. Heavy volume at the EMA tends to be short covering while a few days of bouncing along the EMA on light to average volume tends to be accumulation.

On HMSY, note the accumulation days between 7/11 and 7/18, when the stock pulled back to the 20-day EMA on below average volume. After the institutional investors finished loading up, 7/19 was a nice up day and the start of the next leg higher.

Dave,
I think what happened was that my wife called me to the table for breakfast in the middle of my writing that post. I left the post unfinished until after breakfast. You posted before I got back to posting mine.
That's an interesting POV on the accum./dist. days concept. I've always looked at it from the general definition of higher volume and a higher price or lower price of the preceding day governs either a accum. or dist. day as long as the volume was higher than the preceding days. I'll keep a look out for the way you explained it from now on. Good point and thanks.

[DSteckler]

Dave,
I think what happened was that my wife called me to the table for breakfast in the middle of my writing that post. I left the post unfinished until after breakfast. You posted before I got back to posting mine.
That's an interesting POV on the accum./dist. days concept. I've always looked at it from the general definition of higher volume and a higher price or lower price of the preceding day governs either a accum. or dist. day as long as the volume was higher than the preceding days. I'll keep a look out for the way you explained it from now on. Good point and thanks.

It depends in part on the stock in question. If you're dealing with a penny stock, or a stock with very little institutional ownership, then your understanding is correct. But with a stock that does have institutional ownership, they tend to buy when the little guy is panic selling and vice versa.

[skiracer]

It depends in part on the stock in question. If you're dealing with a penny stock, or a stock with very little institutional ownership, then your understanding is correct. But with a stock that does have institutional ownership, they tend to buy when the little guy is panic selling and vice versa.

I'm always open to new ideas that hold water. Your explanation makes sense to me.

[ParkTwain]

When looking for institutional accumulation or distribution, doesn't one have to look for evidence of large block transactions during that day? If you're not seeing any large blocks, how do you know that it's institutional action?

[skiracer]

When looking for institutional accumulation or distribution, doesn't one have to look for evidence of large block transactions during that day? If you're not seeing any large blocks, how do you know that it's institutional action?

I always have the raw data and time and sales screen up on one of my screens and can see the action on a stock as it trades. I agree that watching for large block trades is a sure indication of institutional buying or selling and I do look for that. Dave seems to have another idea about it. His explanation makes sense but to tell you the truth his thoughts on it are new to me. Perhaps he could offer a little more on what he is talking about to make it clearer. I think he is talking more of the perspective from the institutional side of it. It seems almost the reverse of the definitions we are accustomed to. Dave can you help us out here please?

[DSteckler]

I think he is talking more of the perspective from the institutional side of it. It seems almost the reverse of the definitions we are accustomed to.

Yup. You need to think like an institutional trader, not the guy they're buying from or selling to.

[Louetta]

I always have the raw data and time and sales screen up on one of my screens and can see the action on a stock as it trades. I agree that watching for large block trades is a sure indication of institutional buying or selling and I do look for that. Dave seems to have another idea about it. His explanation makes sense but to tell you the truth his thoughts on it are new to me. Perhaps he could offer a little more on what he is talking about to make it clearer. I think he is talking more of the perspective from the institutional side of it. It seems almost the reverse of the definitions we are accustomed to. Dave can you help us out here please?

I don't agree that his explanation makes sense. Consider where he says "On HMSY, note the accumulation days between 7/11 and 7/18, when the stock pulled back to the 20-day EMA on below average volume. After the institutional investors finished loading up, 7/19 was a nice up day and the start of the next leg higher." He's saying the institutions were able to "load up", that is buy a lot of shares, between 7/11 and 7/18 on low volume with the stock not moving up. How can that happen? How can an institutional client, a big buyer "load up" on low volume? They would create higher volume simply by buying their position. Also, the price would go up, even if they were very careful with their buying. Where would they get the shares to buy? Who would continue to sell them all these shares without getting a higher price? Then he says 7/19 was a nice up day. Why would this happen? Who would buy, sending the stock up, after low volume and no upward price movement for 8 calendar days?

[spikefader]

I disagree with your contention that Thursday wasn't a distribution day. It was...Distribution days are days with heavy volume where the stock makes little or no gains, e.g., 8/31 on HMSY.

Ski's contention has merit. Distribution days involves a decrease in price, Dave. On Thursday, HMSY closed higher than the previous.

[skiracer]

I don't agree that his explanation makes sense. Consider where he says "On HMSY, note the accumulation days between 7/11 and 7/18, when the stock pulled back to the 20-day EMA on below average volume. After the institutional investors finished loading up, 7/19 was a nice up day and the start of the next leg higher." He's saying the institutions were able to "load up", that is buy a lot of shares, between 7/11 and 7/18 on low volume with the stock not moving up. How can that happen? How can an institutional client, a big buyer "load up" on low volume? They would create higher volume simply by buying their position. Also, the price would go up, even if they were very careful with their buying. Where would they get the shares to buy? Who would continue to sell them all these shares without getting a higher price? Then he says 7/19 was a nice up day. Why would this happen? Who would buy, sending the stock up, after low volume and no upward price movement for 8 calendar days?

I was trying to rationalize what Dave was saying from the perspective of an institutional trader. Perhaps my statement of it making sense wasn't a good choice of words. I think that an example of heavy institutional buying or loading up while the price is dropping would be HSOA and what has been going on with it of late. This stock has been dropping a small amount almost everyday over the last couple of weeks. During that same time period MSN Money has it's institutional ownership increasing by almost 12% while the stock has dropped almost $.75. How does this happen when the price is dropping. The only answer I could think of is that as regular traders are exiting their positions the institutional buyers are grabbing everything they can get their hands on at cheapo prices. It has to have something to do with the market makers and their controlling of the prices. In this case they have been keeping the prices low while the institutional buyers are acquiring everything they can get at the lower prices.
The normal definition of an accumulation day is higher volume than the preceding day with an increase in price or a distribution day as higher volume than the previous day with a drop in price. Dave seems to be presenting a different concept directly related to institutional buying or selling and not according to the rule of increasing volume over the preceding day. His statement of having to think like an institutional buyer is where the difference lies and goes against whatever premise we are used to when differentiating between accumulation and distribution days. It's an interesting concept and food for thought. I have been watching HSOA closely because I owned it during the last couple of weeks while the institutional ownership has increased but while the price has dropped. I found that hard to believe or accept but it has been happening. Not saying that Dave is completely correct in definition but from a different perspective could be right on the money. Food for thought. I never discount any concept without giving it some time and consideration.

[Louetta]

I was trying to rationalize what Dave was saying from the perspective of an institutional trader. Perhaps my statement of it making sense wasn't a good choice of words. I think that an example of heavy institutional buying or loading up while the price is dropping would be HSOA and what has been going on with it of late. This stock has been dropping a small amount almost everyday over the last couple of weeks. During that same time period MSN Money has it's institutional ownership increasing by almost 12% while the stock has dropped almost $.75. How does this happen when the price is dropping. The only answer I could think of is that as regular traders are exiting their positions the institutional buyers are grabbing everything they can get their hands on at cheapo prices. It has to have something to do with the market makers and their controlling of the prices. In this case they have been keeping the prices low while the institutional buyers are acquiring everything they can get at the lower prices.
The normal definition of an accumulation day is higher volume than the preceding day with an increase in price or a distribution day as higher volume than the previous day with a drop in price. Dave seems to be presenting a different concept directly related to institutional buying or selling and not according to the rule of increasing volume over the preceding day. His statement of having to think like an institutional buyer is where the difference lies and goes against whatever premise we are used to when differentiating between accumulation and distribution days. It's an interesting concept and food for thought. I have been watching HSOA closely because I owned it during the last couple of weeks while the institutional ownership has increased but while the price has dropped. I found that hard to believe or accept but it has been happening. Not saying that Dave is completely correct in definition but from a different perspective could be right on the money. Food for thought. I never discount any concept without giving it some time and consideration.

I believe the increase in institutional ownership in HSOA came in June when volume was high. After the first week of June the price had come down but volume stayed up for about three weeks. This was the institutions buying at what they thought was a bargain price. Then, at the end of the quarter, as they usually do, the institutions reported their increased holdings which is what you now see in reports. That squares with what is done where I work. A decision is made by the analysts to buy a stock. This info is communicated to the buying group. They then make the buy at the most advantageous prices they can. At the end of the quarter they report their increased holdings. I have never heard anyone say anything to make me think market makers are complicit in this.

The only point I was really trying to make in my last post was that institutions cannot load up on a stock when volume is low. The loading up itself creates high volume.

Lots of people over at the IBD forums seem to actually enjoy thinking we're all being screwed in some grand conspiracy involving market makers, the shorts, hedge funds. I don't believe this. I do believe there are smart people out there who exploit opportunities to make a buck.

[ParkTwain]

For an uptrending stock, a pullback in price, whether to the 20DMA or not, on less than average volume is considered "profit taking" and is a bullish sign.

When Dave said, "Distribution days are days with heavy volume where the stock makes little or no gains," (he didn't say a drop in price) that's not the orthodox point of view.

[DSteckler]

I don't agree that his explanation makes sense. Consider where he says "On HMSY, note the accumulation days between 7/11 and 7/18, when the stock pulled back to the 20-day EMA on below average volume. After the institutional investors finished loading up, 7/19 was a nice up day and the start of the next leg higher." He's saying the institutions were able to "load up", that is buy a lot of shares, between 7/11 and 7/18 on low volume with the stock not moving up. How can that happen? How can an institutional client, a big buyer "load up" on low volume?

By buying over a period of days, instead of buying it all on one day. Spreading the buys over a multi-day period helps avoid running the price up due to strong demand.

[DSteckler]

Ski's contention has merit. Distribution days involves a decrease in price, Dave.

Not always. You've been reading too much Bill O'Neil. Try reading Edwards & Magee, instead.

[skiracer]

Not always. You've been reading too much Bill O'Neil. Try reading Edwards & Magee, instead.

Regardless of your take on it Dave, which I think merits consideration, the most acceptable definition of accumulation/distribution is when a specific days volume is higher than the previous days volume and the price is higher than the previous days close then that's considered an accumulation day and when the volume is higher than the previous day but the price is lower than the previous days close then it's a distribution day.
To me your take makes some degree of sense in that any institutional buyer could be grabbing any shares available in a sell off if he wants to add to or start a position in a stock, but not still not fall within the generally accepted definition. The hard part is discerning who, if institutional or retail, is doing the buying when shares are being sold off yet the volume isn't high enough to qualify in the generally accepted terminology. I see plenty of professional traders who when talking about accum./distrib. days use the commonly accepted definition in their analysis. Yet I see plenty of room for consideration of your take on it.