Stealth Distribution

July  1st, 2013: We have a fresh stealth distribution set up. I’ve posted the information below. See how it goes.

July 6th, 2013: Well, with this past Friday’s mega rally, this signal appears to have been negated.

July 4th, 2012

Stealth Distribution takes place when the market is rising but the $TRIN closes above 1.00. By its nature, it is very subtle and most would not even be aware that the market is under distribution even as the market is rising. And it’s not Uncle Ted & Aunt Alice off-loading a few shares because obviously that isn’t going to register on the $TRIN. Instead, it is the Big Boyz and when you see Stealth Distribution it simply means that the Big Boyz are quietly exiting by the side door. Regardless of what happens next as a result of Stealth Distribution, it seems pretty clear that the Big Boyz are exiting because they have information that us mere mortals do not have and the Big Boyz are acting on this knowledge before the general market becomes aware.

I like to think that Stealth Distribution would take place over a period of 3-5 days and that during this period there would be at least 3 days where the markets rally and yet the $TRIN closes above 1.00. These days do not have to be consecutive, though there are usually a couple that are. After a 3rd such instance of Stealth Distribution, market participants need to be extremely cautious and watch closely during the next few sessions for overt signs of distribution. Often, Stealth Distribution precedes significant market pull backs.

But as with anything involving the stock market nothing is carved in stone and there are exceptions to the above. Fore instance, during December of 2009, there were day after day after day when the market rallied and the $TRIN closed above 1.00 and yet nothing happened. In another example, back on February 16th & February 18th of 2011, the $TRIN closed above 1.00. The following Tuesday, February 22nd, 2011, $SPX lost 27pts and which started a decline that did not end until March 16th, 2011 with $SPX down nearly 90pts.

The point being that while not every instance of Stealth Distribution is going to lead to a market decline of one degree or another, any instance of Stealth Distribution should put traders on high alert for the next several sessions. Once 5-6 sessions have passed beyond the last instance of Stealth Distribution without a negative market reaction, then one can assume that these instances were just false signals.

Below are some examples of Stealth Distribution, including the most recent instances from June 29th, July 2nd, & July 3rd, 2012. And now I’ve updated with signs of stealth distribution that appeared in late June and the 1st of July, 2013.

Late June and the 1st of July, 2013:

June 26th, 2013, $SPX closed at 1603.26, up 15.23pts. $TRIN closed at 1.11.

June 27th, 2013, $SPX closed at 1613.20, up 9.94pts. $TRIN closed at 1.25.

July 1st, 2013, $SPX closed at 1614.96, up 8.68pts. $TRIN closed at 1.11

2012 to date

June 29th, 2012, $SPX closed at 1362.16, up 33.12 pts. $TRIN closed at 1.06

July 2nd, 2012, $SPX closed at 1365.51, up 3.35 pts. $TRIN closed at 1.40

July 3rd, 2012, $SPX closed at 1374.02, up 8.51 pts. $TRIN closed at 1.14

Outcome: Added 7/17/2012. After rising to a closing high of 1374.02 on July 3rd, 2012, $SPX rolled over and, on a closing basis, dropped to 1334.76 on July 12th. This was a loss of 40pts and 2.9%. As of 7/16, $SPX has rallied back and regained 19pts of the original 40pt loss.

April 25th, $SPX closed at 1390.69,  up 18.72 pts. $TRIN closed at 1.02

April 26th, $SPX closed at 1399.98, up 9.29 pts. $TRIN closed at 1.09

April 27th, $SPX closed at 1403.36, up 3.38 pts. $TRIN closed at 1.58

Outcome: Within three sessions, $SPX began a decline that took it from a closing high of 1405.82 on May 1st, 2012, to a closing low of 1278.18, a loss of 127 pts.

2011

February 16th, $SPX closed at 1336.32, up 8.31 pts. $TRIN closed at 1.08

February 18th, $SPX closed at 1343.01, up 2.58 pts. $TRIN closed at 1.37

Outcome: This is a perfect example of how subtle Stealth Distribution can be. February 18th was a Friday and Monday, February 21st the market was closed for Martin Luther King Day. Then on Tuesday, February 22nd, $SPX dropped by 27.57 pts and this began a decline that lasted until March 16th with $SPX losing about 90 pts before it was over.

April 20th, $SPX closed at 1330.36, up 17.74 pts. $TRIN closed at 1.75

April 21st, $SPX closed at 1337.38, up 7.02 pts. $TRIN closed at 1.31

April 26th, $SPX closed at 1347.24, up 11.98 pts. $TRIN closed at 1.32

April 29th, $SPX closed at 1363.61, up 3.13 pts. $TRIN closed at 1.26

Outcome: April 29th was a Friday and on Monday, May 2nd, 2011, $SPX would begin a 75pt decline which was followed by a brief rally. Before it was over in early August $SPX would lose about 170 pts.

I will add more examples as time goes by.