Checklist for Bases with Net Distribution

Note:  This article is meant to help you learn from the market and does not serve as investment advice for any specific group or individual.  For more information, please read the HSR Terms of Use.

How so?

Demand for a stock before it bases is located in the prior uptrend.

As I mentioned, the prior uptrend is not used in base analysis.

However, demand from the prior uptrend may be very helpful in keeping things in the proper perspective.

Specifically, it may help you compare whether or not distribution within a base is significant or just part of a normal correction.

I like to call this process Qualifying Distribution within a Base.

Qualifying distribution within a base is a simple process.

Here are the steps that you need to follow in order to qualify distribution within a base:

Step 1:  Use a weekly chart.

Step 2:  Find a stock with net distribution in its base during a market uptrend.

Note:  I would focus on institutional/liquid stocks and stay away from low-priced stocks that have little liquidity.

Step 3:  Look for a price thrust (accumulation week) in the stock's prior uptrend.  The price thrust range should be at the bottom of the base.

Note:  If there is no price thrust in the prior uptrend, then you can't qualify distribution within the base.

Step 4:  If the price thrust volume is heavier than the volume in the distribution weeks within the base, then the distribution in the base may not be significant.

That's all there is to the process.

You are essentially using the volume from the prior uptrend as a benchmark against the distribution volume within the base.

Please keep in mind that this is a technical process only and doesn't include fundamental analysis.

Fundamental analysis may also help you understand a stock so you should include that in your review process.

Let me show you how this works on a chart.

Do you remember my first chart example?

If not, it was America Movil (AMX) from 2004.

If you recall, America Movil's base had 8 weeks of distribution and only 3 weeks of accumulation.

Now - let's qualify the distribution within its base to get a clearer picture of whether or not the distribution is important.

Please take a look at the chart below.

Historical Stock Chart Example 5A:  America Movil (AMX) 2004

Did you see how including the price thrust from the prior uptrend makes a difference in giving weight to the distribution weeks within the base?

America Movil (AMX) had significant price thrusting in its prior uptrend, which exceeded most of the distribution volume within its base.

I have some more examples of this process in Step 2 (Base Categories) if you'd like to see a few historical charts.

In conclusion, net distribution within a stock's base isn't necessarily the end of the world for a stock.

I've given you five (5) questions to ask if a stock has net distribution within its base.

This may help you in future markets.

Items like fundamental analysis are also an important part of the review process and should be included with any technical work.

Many things in the market are not black or white and that's where historicalstockresearch.com can help you better understand the stock market.