Understanding Stock Market Structure

Understanding Market Structure PINNACLE Accumulation Markup Distribution Decline Ocurs after a drop in prices. Process of buyers gaining control from sellers which leads to markup. Bullish phase of a stocks life is defined by higher highs and higher lows. This is where you want to get long on breakouts and after short term pullbacks. Rallios are "innocent until proven guilty". Occurs after a prolonged price advance, process of sellers gaining control of prices, which leads to dedine. Bearish phase of a stocks life, this is where you want to be short, lock to sell short fresh breakdowns after short term rallies have exhausted themselves. Rally attempts are "guilty until proven innocent". mhching A Anticipate/Analysis A Anticipate/ Analysis B Participate (Buy) B Participate (Sell Short) C Exit Long (Sell) C Exit Short (Buy to Cover) D Avold D Avoid 1-1 1-2 1-3 2-1 2-2 2-3 3-1 3-2 3-3 4-1 4-2 4-3 EARLY ACCUMULATION EARLY MARKUP EARLY DISTRIBUTION EARLY DECLINE 1-1 Beginning of transition from bearish trend to more neutral, longer term moving averages are still declining and the stock will cross above and below those moving averages. Many of these stocks will continue lower and should 2-1 Stock first establishes a pattern of higher highs and higher lows above rising longer term moving average. These stocks show considerable upside momentum and should be monitored dosely on shorter term timeframes for low risk buying opportunities. 3-1 Shorter term moving averages begin to cross one another which indicates a confusion of trend. Many of these stocks will continue higher so they should still be monitored for potential bng candidates. 4-1 The stock first establishes a pattern df lower highs and lows below the declining konger term moving averages. These stocks are beginning to show signs of fear and can decine rapidly. These stocks should be on watchlists for short sale opportunities. s wil continue to be monitored for short opportunites. MID MARKUP MID DISTRIBUTION MID DECLINE MID ACCUMULATION 1-2 Bearish forces become more neutral as buyers methodically accumulate shares, but still no signs of upward momentum dovelop. 2-2 Pullbacks above the rising longer term average may become deeper but these stocks are cften in the "sweet spot" of an uptrend where gains can come quickly. 3-2 These stocks have become more neutral and should be looked at as "orrecting through time." Upside is still possible, but becomes less likely as the interest from momentum traders shifts to more adive issues. 4-2 Rallies to longer term moving averages typically fail as more participants bse hope in a rally and the reality of a declining stock starts to settle in. These stocks offer excellent shorting opportunities. LATE MARKUP LATE DECLINE LATE ACCUMULATION LATE DISTRIBUTION 1-3 Higher lows will often develop but the stock is unable to penstrate a longer term resistance level to create a higher high. Moving averages have flattened out as buyers skowly gain control. 2-3 The upward momentum is still present but rallies may take longer to develop after pulbacks. Gains can come very quickly, often at the expense of "trapped" short sellers who have incorrectly bet against the uptrend. 3-3 Some of the shorter term moving averages may be declining and acting as resistance but the stock has not broken key support to place it in official downtrend. These stocks are quite vulnerable to dedine. 4-3 The downward momentum is still present and dedines ca come rapidly, but so too can violent short squeeze rallies, particularly after "bad news" is reported. Graphic by Infographics® pinnaclefinancial.in