Welcome back fellow Wyckoffians! In our last episode, we looked at the basics of Wyckoffian Structural Price Movement as well as introduced and defined the concepts of accumulation and distribution. Accumulation and one of its associated schematics were also reviewed. Now, it’s time to look at the other side of the coin: distribution.
- A Quick Look at Distribution.
Distribution involves the sale of large stock positions, usually by a CO, as a part of long-term operations. The following is a schematic of one variation of distribution:
Let’s look at what price has done during this formation:
- Price moved up (prior uptrend),
- Price stopped going up,
- Price went sideways,
- Price briefly overcame resistance, and
- Price then moved down and below support.
Take a minute and make a visual inventory of the Distribution Schematic (Type 1). We will cover the details in later blogs, so just focus on the big picture for now.
Now let’s look at another stock from our original scan in Blog 3: Let’s Scan, but this time we will look for weakness that might be distribution.
Here are the scan results from our first scan, but sorted in the opposite direction so that we have the lowest technical rank (SCTR) first:
In order to re-sort our results so that the weakest stocks are displayed first, we just clicked on the SCTR column label (at the column top) until we had the lowest SCTR first in the chartlist. If we wanted to save this sort order, we could renumber the chartlist in this order (remember to edit, remove numbers and then renumber). For our purpose, we will simply look at the stock with the lowest technical rank—SCTR and see if it resembles our distribution schematic.
Biogen (BIIB) is the weakest stock by SCTR. Note: SCTR is dynamically adjusted, so the weakest today, may not be the weakest tomorrow. When we look BIIB, dramatic price movements, both up and down, are apparent.
One of the hallmarks of distribution is increased volatility: price can move quickly and dramatically. One reason is that the CO may have sold most (or all) of its position and is no longer supporting the stock price. Similarly, the CO could be short and hoping for a lower price (remember, shorting usually involves borrowing shares, selling the shares and then, buying the shares back a lower price to return to the original owner). Once other sophisticated traders, perhaps non-CO institutional traders, figure this out, there can be a run for the exits: the elephants are moving, so watch out!
Let’s put some lines on the chart and see if that helps our eyes focus even more.
Sure looks like our Distribution (Type 1) Schematic. Remember, schematics are ideal depictions: real life is usually a bit different so it is best to stay with “big picture” concepts for now.
In this blog post, we looked at distribution–the other side of the Wyckoffian coin. Here are a few questions to ponder for the future:
- Can we look specifically for Wyckoffian Structural Price Movements resembling distribution or accumulation?
- Can scanning be precise enough to find stocks being accumulated or distributed?
- Are there elements of Wyckoffian Structural Price Movement that facilitate scan queries?
Stay tuned and we will try and answer these questions while we travel the Wyckoff Structural Scanning path together.
Remember: When you think like a Wyckoffian, you can scan like a Wyckoffian.
Next time, we will look deeper into accumulation and distribution to identify elements that can be the subject of our scans.
See you next time.
Scan well, trade better!
John Colucci, Jr.