Stock Market Health Report: Despite Distribution Days, the Trend Continues Higher

by Darrin Donnelly on December 8, 2010

Click on chart to enlarge.

Click on chart to enlarge.

On Tuesday, the NASDAQ gave us some not-so-encouraging action. 

While it gapped-up to start the day and actually hit a three-year high, the market sold off as the day went on and all three major indexes closed at their session lows. 

The increased volume that occurred gave us a day of “churning” or “stalling” action, which counts as a distribution day (a day when the market declines on increased volume). 

Distribution days and accumulation days (days when the market goes up on increased volume) can tell us a lot about the strength or weakness of the stock market. 

Currently, distribution days are currently outnumbering accumulation days, which is not a good sign.

But despite this somewhat negative behavior, none of our Darvas stocks have been damaged.  They all continue to maintain key support levels, work on sound new bases, and trend higher.

On Wednesday, the market moved higher on lower volume.  However, it was encouraging to see that the NASDAQ didn’t fall below its high mark for the year (notice the blue line on the chart that accompanies this article). 

This tells us that while there may be some nervousness regarding a runaway uptrend into new-high territory, there are still plenty of buyers supporting this market’s uptrend. 

In the days ahead, I’d love to see a strong day of accumulation (an increase on higher volume) that forcefully confirms a Stage 2 market. 

Regardless of whether we see such price-volume action this week, you don’t want to fight this trend and right now the trend is clearly upward. 

As always, the most important thing to do is trust the action of your individual Darvas stocks.

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* Portions of this article appeared in the December 8th issue of Darvas Trader PRO.  You can access the full issue by clicking here.

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