Invest and Trade Profitably with Jon Johnson

Found your column of August 18th most interesting. What indicators do you look at to conclude, “accumulation in the market started turning to churning and then to distribution”?

August 30, 2000

Thanks for the interest in the weekend column. It was meant to getpeople thinking and it appears it did. As far as the indicators regardingaccumulation, churning, and then distribution, we don’t have to look anyfurther than the market itself. After the May high, the indexes startedto drift lower, but the entire time, the price and volume action remainedhealthy, i.e., the up days were on stronger volume while the down dayswere on weaker volume. That shows that there were net more buyers thansellers in the market. It shows (watching block trades as well) thatinstitutions were slowly accumulating positions in stocks across theboard. The advance/decline line was also holding up well. That continuedup to the latter part of July when we started to see the indexes unable tomove to higher highs after some good price/volume action. On August 2,the Nasdaq showed a doji on strong volume at the most recent July high andstarted down again. That is a sign of some churning. Then it sold onlighter volume, and that was okay, but not great. Then it started to sellon rising volume, i.e., distributing. That started August 7 andintensified as the month wore on. The result was a breakdown on strongervolume, i.e., instead of accumulating shares the institutions startedlightening up on equities. That corresponded to the big slide down in thedollar.

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