The business of accumulating a stock is like any other campaign. To buy stock in very large amounts
without putting the price up against your own buying requires planning, good judgement, effort,
concentration, trading skill and money. As a basic guide, you will notice that the stock is very reluctant to react when the Index itself is falling. This is because the professionals are buying most of the sell orders coming into the market and certainly not selling. On any sort of rally, there is usually very low volume associated with a stock under accumulation. This is because they are not chasing the higher prices (indicated by the low volume up-moves). On these low volume rallies you will often see a sudden increase in volume on an up-day – the stock is being hit hard and fast by just enough selling to knock it back down again, which prevents any sort of rally to start. This results in more stock being bought than sold. These are the classic signs of accumulation. You should anticipate a test, or a shake-out (on bad news) near, or at the end of an accumulation zone, just before a genuine bull move in the stock is about to start.
It is also possible to accumulate some stock, but usually not all the stock, in the so-called “dawn raids”, or by other methods, such as share offers. This is done by traders in a hurry, perhaps with more money than patience (nominees are often used to camouflage the real buyers). Few can afford this expensive way to purchase stock. Slow accumulation is the cheap way, done very quietly, almost undercover; giving away as little as possible. You hear very little about stocks under accumulation, all the hype and news is kept for the distribution (selling) phase. You would do exactly the same thing! If you are the potential buyer of a house, you are looking for negative information to feed to the seller in the hope of a lower price. If you are the seller, you are looking for positive information to maintain the price.
Accumulation is a business. Any dealer who has the task of investing large amounts of capital in the stock market will have problems unless he is a true professional and a member of the exchange (i.e. no commissions). Market-makers will immediately notice the size of his orders, and will rapidly mark the price of the stock up against his buying – the process will become self-defeating. As his orders are exercised, the supply (selling) on offer is rapidly absorbed. Once this has happened he will need to buy at ever-increasing prices, causing a sharp upwards spike to appear. The price shoots up, but as soon as he stops buying, it will plummet back down to where he first started, because he is the only one seriously buying, and had not removed all the floating supply at the lower price level. This supply, which he had not removed, was being sold into his buying once a higher price had been reached (resistance). Therefore, he would achieve very little for his clients, or his own account.
This is why professionals have to 'shake traders out of their holdings’. On every small rally, some traders, who still hold the stock you feel bullish about, will start to sell. If they are weak holders, they are glad to see at least some of their money back. This annoying selling creates resistance to the professional, who has accumulated a line of stock, and wants to be bullish. The cost of having to buy stock at higher levels to keep prices rising is very bad business. This is the reason a stock or an Index is unlikely to go up until most of these weak holders have been 'shaken-out’. Bull markets usually
rise slowly, but rise persistently, unlike bear markets that fall rapidly. This slower rise seen in bull markets is caused in part by locked-in traders selling on any small rally (resistance to the up-move).
The reason for the bull market seen during most of 1991 was the massive transfer of stock over a fourmonth period near the lows of the market during late 1990. This transfer was decidedly helped along by the Middle East war 'news', which conveniently happened after a substantial bear market had already taken place. This transfer took time and was not as dramatic as a selling climax because the bear market had not fallen sufficiently to create enough pain and panic to force weak holders to sell. The price was not forcing the selling, but the persistent bad news was. This had exactly the same results as a selling climax, but over a longer period of time. In other words, you witnessed persistent selling which the professional money absorbed over four months, rather than the usual two or three days seen in a selling climax.
Traders were shaken-out of their holdings on the persistent daily bad news, “Saddam Hussein has a battlehardened army and 'your blood will flow in the sands'!” You may have noticed that when the war actually started, the market shot up, at a time when even good traders might have expected a shake-out on the news that war had now broken out. In this case, they did not need a shake-out because most of the weak holders had already been convinced to sell much earlier.
If the Middle East problems had never existed and no bad news had appeared at that time, the market
would have dropped considerably lower than it did and may not have held until a point had been reached where weak holders would have been forced to sell, producing a more obvious selling climax. The bad news from the Middle East simply gave the professional money an early opportunity to buy large amounts of stock, without putting the price up against themselves.
As everything in the stock market is relative, you will see this principle at work, even operating within a small trading range. You will see selling at the tops and then buying back on the lows, but in this case smaller amounts are involved. This is buying and selling by different groups looking for the smaller moves within the major move. Their activity 'tips the scales' temporarily within the major trend. You cannot go straight into a bull market from a bear market unless there has been a substantial transfer of stock from weak holders to strong holders. You need to see this transfer in the underlying stocks that make up the Index. If this transfer is not clear at any potential lows, and an up-move starts anyway, you will know well in advance that the move is not a full-blooded bull move; instead, a price rise is liable to fail. In any move that is liable to fail, you will see either a ‘no demand up-day’ (low volume) or an excessively high volume up-day, with no results (prices come off the next day, or an up-thrust appears). You will not see this type of action in a true bull market.
What is good about a bear market is that you know a major bull move will develop from it, once the
transfer of stock has taken place. A good trader will buy all successful tests in the subsequent bull market, which can last many years (see testing). Once a bear market has been running for some time, a point will be reached where those traders that have been locked-in at higher prices and who have held on hoping for a recovery, start to panic and are shaken out of the market (crowd psychology). Alarm is frequently triggered by bad news after these traders have already seen substantial paper losses. As the panic sets in, these now fearful holders start to sell, giving the professionals a chance to buy large amounts of stock without putting the price up against their own buying.
This is usually just the start of accumulation in many of the individual stocks, marking the lows of the
Index. After a major transfer (selling climax), expect a major bull market to follow. The accumulation of stock can be regarded as storing energy for a move upwards. The process is akin to storing energy in a battery under charge (amount of stock transferred to professional buyers). The energy stored can be released later (the move up), but is limited by the time spent under charge. The energy can be
released quickly in a rapid discharge, or slowly. The battery might also be topped up along the way in
periods of re-accumulation. We can measure the capacity of an accumulation area in a point and figure chart count, and predict the potential move derived from the release of stored energy as a price objective.
How to Recognise the Likely End of a Rally?
What types of supply (selling) indications will stop an up-move?
If you are a bullish trader, there are only five major signs of supply (selling) to worry about. These signs of supply will slow a bullish move, or even stop it – they are:
1. The buying climax.
2. A failed test (a test that is not accompanied by low volume).
3. Narrow spreads accompanied by high volume, on an up-day, into new high ground.
4. The up-thrust.
5. Sudden high volume on an up-day (bar), with the next day (bar) down, on a wide spread, closing
below the low of the previous bar. It is not difficult to spot these signs.
The Buying Climax
The buying climax only comes along on rare occasions. It is hallmarked by a very wide spread up to close well off the highs on ultra-high volume. This is after a substantial bull market has already taken place. If you are in new high ground, this is a certain top. A test with low volume indicates higher prices; however, the same test with high volume indicates supply present. The market is unlikely to go up very far with supply (selling) in the background.
Narrow Spreads & High Volume
This is very simple to see. The public and others have rushed into the market, buying before they miss further price rises. The professional money has taken the opportunity to sell to them. This action will be reflected on your chart as a narrow spread with high volume on an up-day. If the bar closes on the high, this is an even weaker signal. This type of action is seen after a rally of some sort. Buyers are drawn into the market, usually on good news, which gives the professionals the opportunity to sell. Remember, you are not trying to beat the market, but join the professional money. You can sell with them, and you certainly should not be buying.
Up-Thrusts
Up-thrusts can be recognised as a wide spread up during the day (or during any timeframe), accompanied by high volume, to then close on the low. Up-thrusts are usually seen after a rise in the market, where the market has now become overbought and there is weakness in the background. Up-thrusts are frequently seen after a period of selling, just before a down-move. Note the day must close on or very near the lows; the volume can be either low (no demand) or high (supply overcoming the demand).
Market-makers are quite capable of generating an up-thrust, which is a moneymaking manoeuvre. The dynamics of an up-thrust are interesting and quite brutal – the rapid up-move brings in buyers and catches stops. The traders who are already selling (shorting) the market, become alarmed and cover their positions. It is a common strategy to suddenly mark-up prices to catch the unwary. This action is seen after signs of weakness and frequently indicates the start of a falling market. Once the market is known to have become weak, market-makers or specialists can mark the prices up quickly, perhaps on good news, to trap you.
The higher price is maintained for as long as possible. The price then falls back, closing on the lows. As the early price is marked up, premature short traders are liable to panic and cover with buy orders.
However, those traders looking for breakouts will buy, but their stop-loss orders are usually triggered as the price plummets back down. All those traders who are not in the market may feel they are missing out and will feel pressured to start buying. This action is also designed to entice large pension funds, fund managers, banks and so on into the market. You do not have to be a small trader to be forced into a poor trading position! Overall, these up-thrusts are very profitable for the market-makers or specialists. An upthrust is usually seen after a period of weakness and usually indicates lower prices. Remember that the market-makers are in the enviable position of being able to see both sides of the market and have a far better view of the real situation than ordinary traders could possibly have. Surely, if the market-makers were still bullish, they would be gunning for stops below the market rather than above it.
without putting the price up against your own buying requires planning, good judgement, effort,
concentration, trading skill and money. As a basic guide, you will notice that the stock is very reluctant to react when the Index itself is falling. This is because the professionals are buying most of the sell orders coming into the market and certainly not selling. On any sort of rally, there is usually very low volume associated with a stock under accumulation. This is because they are not chasing the higher prices (indicated by the low volume up-moves). On these low volume rallies you will often see a sudden increase in volume on an up-day – the stock is being hit hard and fast by just enough selling to knock it back down again, which prevents any sort of rally to start. This results in more stock being bought than sold. These are the classic signs of accumulation. You should anticipate a test, or a shake-out (on bad news) near, or at the end of an accumulation zone, just before a genuine bull move in the stock is about to start.
It is also possible to accumulate some stock, but usually not all the stock, in the so-called “dawn raids”, or by other methods, such as share offers. This is done by traders in a hurry, perhaps with more money than patience (nominees are often used to camouflage the real buyers). Few can afford this expensive way to purchase stock. Slow accumulation is the cheap way, done very quietly, almost undercover; giving away as little as possible. You hear very little about stocks under accumulation, all the hype and news is kept for the distribution (selling) phase. You would do exactly the same thing! If you are the potential buyer of a house, you are looking for negative information to feed to the seller in the hope of a lower price. If you are the seller, you are looking for positive information to maintain the price.
Accumulation is a business. Any dealer who has the task of investing large amounts of capital in the stock market will have problems unless he is a true professional and a member of the exchange (i.e. no commissions). Market-makers will immediately notice the size of his orders, and will rapidly mark the price of the stock up against his buying – the process will become self-defeating. As his orders are exercised, the supply (selling) on offer is rapidly absorbed. Once this has happened he will need to buy at ever-increasing prices, causing a sharp upwards spike to appear. The price shoots up, but as soon as he stops buying, it will plummet back down to where he first started, because he is the only one seriously buying, and had not removed all the floating supply at the lower price level. This supply, which he had not removed, was being sold into his buying once a higher price had been reached (resistance). Therefore, he would achieve very little for his clients, or his own account.
This is why professionals have to 'shake traders out of their holdings’. On every small rally, some traders, who still hold the stock you feel bullish about, will start to sell. If they are weak holders, they are glad to see at least some of their money back. This annoying selling creates resistance to the professional, who has accumulated a line of stock, and wants to be bullish. The cost of having to buy stock at higher levels to keep prices rising is very bad business. This is the reason a stock or an Index is unlikely to go up until most of these weak holders have been 'shaken-out’. Bull markets usually
rise slowly, but rise persistently, unlike bear markets that fall rapidly. This slower rise seen in bull markets is caused in part by locked-in traders selling on any small rally (resistance to the up-move).
The reason for the bull market seen during most of 1991 was the massive transfer of stock over a fourmonth period near the lows of the market during late 1990. This transfer was decidedly helped along by the Middle East war 'news', which conveniently happened after a substantial bear market had already taken place. This transfer took time and was not as dramatic as a selling climax because the bear market had not fallen sufficiently to create enough pain and panic to force weak holders to sell. The price was not forcing the selling, but the persistent bad news was. This had exactly the same results as a selling climax, but over a longer period of time. In other words, you witnessed persistent selling which the professional money absorbed over four months, rather than the usual two or three days seen in a selling climax.
Traders were shaken-out of their holdings on the persistent daily bad news, “Saddam Hussein has a battlehardened army and 'your blood will flow in the sands'!” You may have noticed that when the war actually started, the market shot up, at a time when even good traders might have expected a shake-out on the news that war had now broken out. In this case, they did not need a shake-out because most of the weak holders had already been convinced to sell much earlier.
If the Middle East problems had never existed and no bad news had appeared at that time, the market
would have dropped considerably lower than it did and may not have held until a point had been reached where weak holders would have been forced to sell, producing a more obvious selling climax. The bad news from the Middle East simply gave the professional money an early opportunity to buy large amounts of stock, without putting the price up against themselves.
As everything in the stock market is relative, you will see this principle at work, even operating within a small trading range. You will see selling at the tops and then buying back on the lows, but in this case smaller amounts are involved. This is buying and selling by different groups looking for the smaller moves within the major move. Their activity 'tips the scales' temporarily within the major trend. You cannot go straight into a bull market from a bear market unless there has been a substantial transfer of stock from weak holders to strong holders. You need to see this transfer in the underlying stocks that make up the Index. If this transfer is not clear at any potential lows, and an up-move starts anyway, you will know well in advance that the move is not a full-blooded bull move; instead, a price rise is liable to fail. In any move that is liable to fail, you will see either a ‘no demand up-day’ (low volume) or an excessively high volume up-day, with no results (prices come off the next day, or an up-thrust appears). You will not see this type of action in a true bull market.
What is good about a bear market is that you know a major bull move will develop from it, once the
transfer of stock has taken place. A good trader will buy all successful tests in the subsequent bull market, which can last many years (see testing). Once a bear market has been running for some time, a point will be reached where those traders that have been locked-in at higher prices and who have held on hoping for a recovery, start to panic and are shaken out of the market (crowd psychology). Alarm is frequently triggered by bad news after these traders have already seen substantial paper losses. As the panic sets in, these now fearful holders start to sell, giving the professionals a chance to buy large amounts of stock without putting the price up against their own buying.
This is usually just the start of accumulation in many of the individual stocks, marking the lows of the
Index. After a major transfer (selling climax), expect a major bull market to follow. The accumulation of stock can be regarded as storing energy for a move upwards. The process is akin to storing energy in a battery under charge (amount of stock transferred to professional buyers). The energy stored can be released later (the move up), but is limited by the time spent under charge. The energy can be
released quickly in a rapid discharge, or slowly. The battery might also be topped up along the way in
periods of re-accumulation. We can measure the capacity of an accumulation area in a point and figure chart count, and predict the potential move derived from the release of stored energy as a price objective.
How to Recognise the Likely End of a Rally?
What types of supply (selling) indications will stop an up-move?
If you are a bullish trader, there are only five major signs of supply (selling) to worry about. These signs of supply will slow a bullish move, or even stop it – they are:
1. The buying climax.
2. A failed test (a test that is not accompanied by low volume).
3. Narrow spreads accompanied by high volume, on an up-day, into new high ground.
4. The up-thrust.
5. Sudden high volume on an up-day (bar), with the next day (bar) down, on a wide spread, closing
below the low of the previous bar. It is not difficult to spot these signs.
The Buying Climax
The buying climax only comes along on rare occasions. It is hallmarked by a very wide spread up to close well off the highs on ultra-high volume. This is after a substantial bull market has already taken place. If you are in new high ground, this is a certain top. A test with low volume indicates higher prices; however, the same test with high volume indicates supply present. The market is unlikely to go up very far with supply (selling) in the background.
Narrow Spreads & High Volume
This is very simple to see. The public and others have rushed into the market, buying before they miss further price rises. The professional money has taken the opportunity to sell to them. This action will be reflected on your chart as a narrow spread with high volume on an up-day. If the bar closes on the high, this is an even weaker signal. This type of action is seen after a rally of some sort. Buyers are drawn into the market, usually on good news, which gives the professionals the opportunity to sell. Remember, you are not trying to beat the market, but join the professional money. You can sell with them, and you certainly should not be buying.
Up-Thrusts
Up-thrusts can be recognised as a wide spread up during the day (or during any timeframe), accompanied by high volume, to then close on the low. Up-thrusts are usually seen after a rise in the market, where the market has now become overbought and there is weakness in the background. Up-thrusts are frequently seen after a period of selling, just before a down-move. Note the day must close on or very near the lows; the volume can be either low (no demand) or high (supply overcoming the demand).
Market-makers are quite capable of generating an up-thrust, which is a moneymaking manoeuvre. The dynamics of an up-thrust are interesting and quite brutal – the rapid up-move brings in buyers and catches stops. The traders who are already selling (shorting) the market, become alarmed and cover their positions. It is a common strategy to suddenly mark-up prices to catch the unwary. This action is seen after signs of weakness and frequently indicates the start of a falling market. Once the market is known to have become weak, market-makers or specialists can mark the prices up quickly, perhaps on good news, to trap you.
The higher price is maintained for as long as possible. The price then falls back, closing on the lows. As the early price is marked up, premature short traders are liable to panic and cover with buy orders.
However, those traders looking for breakouts will buy, but their stop-loss orders are usually triggered as the price plummets back down. All those traders who are not in the market may feel they are missing out and will feel pressured to start buying. This action is also designed to entice large pension funds, fund managers, banks and so on into the market. You do not have to be a small trader to be forced into a poor trading position! Overall, these up-thrusts are very profitable for the market-makers or specialists. An upthrust is usually seen after a period of weakness and usually indicates lower prices. Remember that the market-makers are in the enviable position of being able to see both sides of the market and have a far better view of the real situation than ordinary traders could possibly have. Surely, if the market-makers were still bullish, they would be gunning for stops below the market rather than above it.
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