Professional Documents
Culture Documents
Sell
Buy
Market Tops
After a sustained market uptrend, there will always be signs when the
advancing phase is over. These signs will come as the market is still
advancing. The key signal the market may be in a topping process is
an increase in the number of distribution days in at least one major
market index. A typical distribution day is one that closes down from the
previous day (at least -0.2%) on higher volume than the prior day. This is
your first clue institutional investors are selling stocks.
2
Market Bottoms
Market bottoms are deciphered by your observing the daily price
and volume action on the four major indices: the S&P 500, Nasdaq
Composite, New York Stock Exchange (NYSE) Composite and Dow
Jones Industrials. After the market makes a low, look for the first day
the market closes up from the previous day. This is normally day one
of a rally attempt. As long as the index is able to remain above the
previous low, the attempted rally is in place.
The next step is to wait and watch for one or more of the four market
indices to show a follow-through day. This is a day where the index
closes up significantly on volume heavier than the previous day. The
S&P 500 or NYSE Composite typically need to close up 1.7% or either
the Nasdaq Composite or Dow Industrials need to close up 2.2% or
more. The first three days of an attempted rally are too soon to judge
if the market confirms its new uptrend by having a follow-through day.
Follow-through days can happen on the fourth day or later of the rally
attempt.
The Big Picture column, found on the front page of Investors Business
Daily everyday, can give you strong insight and help in determining
the market direction. Also, watch the daily Market Wrap video found at
www.investors.com.
The charts on the next two pages provide definitions of key features
included in IBD chart examples and can be used as an additional
reference as you go through this booklet.
William J. ONeil
3
4
1990 Dow Jones Industrials Market Top Daily Chart Daily charts are used to interpret price
Stalling day and volume action of market indices.
Stalling day 3
2 4 Distribution day count is shown for market
1 5 tops with the numbered arrows. Stalling
days are counted as distribution days.
50-day moving
average price line
200-day moving
average price line
High
Close
Low
Dashed line
marks intraday
low before new
rally begins 50-day moving
average price line
Follow-through on
5th day+2.34%. 200-day moving
No valid follow-throughs on average price line
these rallies so you dont Day 1
jump back in prematurely.
Volume remains
heavy on stalling day
3 4 5
1 2
4 5
4
1 2 3 5
NYSE Volume in 100s
Volume remains
heavy on stalling days
2 4
5
1 3
4 5
1 2 3
Nasdaq Volume in 100s
Day 1
Heavier volume
than previous day Heavier volume
than previous day
Follow-through
Follow-through on 5th on 5th day
day eventually fails +4.17%
+5.09%
Day 1
Day 1
Follow-through on
7th day+2.59%
Not much was expected out of the with a gap up
market at this time due to Y2K fears
Day 1
Follow-through on
4th day+3.88%
Day 1
Heavier volume
There was a persistent trend of than previous day
heavier volume on up days. This was
a subtle clue of accumulation.
Strong day on
heavier volume but
only +1.25%
Follow-through on
10th day+2.50%
Educational Hotline
Call 310-448-6150 to get instant answers to your questions about using
IBD, Investors.com and the CAN SLIM Investment System.
Available M-F 5:30am-4:30pm and Sat 7:00am-3:30pm (PT)
Investors.com
Dont forget to take advantage of all the powerful investing tools, stock lists,
and exclusive market analysis at our website, www.investors.com
Financial Freedom
Taught Here!
Attend an IBD Workshop in your area.
Level I:
Beginning Strategies for Successful Investing
Level II:
Intermediate Strategies for Successful Investing
Level III:
Chart School
Level IV:
CAN SLIM Masters Program
BLKT-MTMB-01