This market does not want to rest. What are the odds of a blow off top here? (June 5, 2003)
You have to look at the volume in conjunction with the price to determine if there is accumulation or distribution. A price gain on rising volume is accumulation. A price gain on lower volume is not technically accumulation, just a continued gain. Now if volume is high already and remains high, it can be a bit lower on a day but the market is still in an accumulation phase. If prices close lower but volume moves higher, that is distribution. If prices are lower but volume is lower as well, that is not distribution, just profit taking.
The difference is important because higher volume selling indicates that big money is moving out of stocks faster than it is coming in. Several sessions of distribution indicate the big money is leaving and there won't be anything left to hold stocks at their present levels much more push them back up.
Applying that to your specfici question, if indexes gap higher but close blow the opening price that is an intraday reversal, but it is not necessarily distribution. If volume is lower than prior buying sessions or consolidation sessions, then the pullback can be classified as further consolidation, profit taking, or a low volume failure to break higher. If volume jumps up on the session and you have a rising volume reversal that closes below the opening price, that can be trouble whether or not the index closes positive or negative. A negative close would be the technical definition of distribution. A positive close would not be technical distribution, but it would show that investors were dumping stocks harder when the market reached a certain point (could be resistance). Neither are good signs as one represents out and out distribution plus a reversal and the other shows churning.
Churning is high volume turnover after a move higher. Stocks make a run on rising volume. That shows the buyers outnumber the sellers. When they go nowhere but volume continues to move higher, it shows the sellers have caught up with the buyers. Stocks are running in place. If you run in place hard enough or long enough, you have to take a rest. That menas a pullback could be the next event as the buyers have exhausted themselves for now.
This is something of what we are seeing in the indexes right now, particularly Nasdaq with its high volume reversal Monday and weak volume bounce Tuesday. The market maintains its bullish bias, and thus we anticipate a further pullback to be more or less orderly. Choppy, but overall orderly.
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