The Weekend Review of the Markets: Some Brief Remarks

I have a few comments I can make for this weekend.

Every time the market consolidates, it can be a pattern of distribution. It remains logical to me that smart money distributes stocks to a very bullish public in this rally. Whether that’s here or somewhere else remains to be seen. But, as a pattern of distribution, this has some features that we like:

We have a sort of well-defined trading range, when viewed horizontally. And crucially, we have yesterday. In many distributions, there will be a violent “upthrust” toward the end, which carries the acronym “UTAD,” which stands for an “UpThrust After Distribution.” And it’s possible that yesterday was that. A UTAD is usually followed by a steep decline, because the distribution is over.

Now what I don’t like is that we shot straight back up again today. It’s sometimes better to see a “SOW,” or a “Sign of Weakness,” in which case you at least poke out the bottom of the range, then return to the range in a partial recovery called a “LPSY,” or a “Last Point of Supply.”

In other words, I think it would be a little more convincing if it had at least tried something like this:

Now we had this big, beautiful, bearish engulfing, outside reversal day yesterday. And it would have been better to have seen followthrough today, as all candles need confirmation; they need at least a second candle. Some folks say you need it right away, some say you need it in two days. We didn’t get it today.

Since we’re in earnings season, if we are distributing, it’s also possible that they’re not going to make their move until later next week, and the distribution can take longer, like this or something:

I always prefer a little faster because I know the public is bullish and long here, and the longer we consolidate, the more time folks will have to get cold feet and hedge, or take something off. And I always wonder if the institutions are eager to let that money go or not.

So, right now, I have to conclude that we’re distributing and it’s only a matter of time before we begin a markdown phase.

Here are some ways we can count, both fast and slow:

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So, we’ll have to see. We have everything we need in place for a top, but they can take as long as they’d like, if we’ve entered a longer distribution. But, if it is a distribution, it should end, and we should see lower prices.

I hope everyone has a fine evening and I look forward to seeing you next week.