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Wyckoff Re Distribution

The document discusses the concept of re-distribution in stock markets. Re-distribution occurs after an uptrend when the composite operator abandons a stock, leaving it vulnerable to a downtrend with high volatility. Short sellers enter the market, and their covering of short positions causes volatile rallies and reactions, jamming out remaining short sellers. This sets up a trading range where rallies are sharp but reactions are less so. Eventually the downtrend resumes with increased volatility. Re-distribution patterns resemble prior distribution and involve signs of weakness as the stock breaks below important price levels.

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Osama Jamran
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598 views9 pages

Wyckoff Re Distribution

The document discusses the concept of re-distribution in stock markets. Re-distribution occurs after an uptrend when the composite operator abandons a stock, leaving it vulnerable to a downtrend with high volatility. Short sellers enter the market, and their covering of short positions causes volatile rallies and reactions, jamming out remaining short sellers. This sets up a trading range where rallies are sharp but reactions are less so. Eventually the downtrend resumes with increased volatility. Re-distribution patterns resemble prior distribution and involve signs of weakness as the stock breaks below important price levels.

Uploaded by

Osama Jamran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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WYCKOFF

METHOD

VOLUME 9
RE-DISTRIBUTION

QUANTUM STONE
CAPITAL
TABLE OF CONTENTS
1 RE-DISTRIBUTION

2 RE-DISTRIBUTION SCHEMATIC
1 RE-DISTRIBUTION

Redistributions come in many varied shapes, sizes and


timeframes. They tend to be messy with much volatility
and minimal predictability.

Trend analysis can be a useful tool during downtrends


and Redistributions. A volatile downtrend becomes
more volatile as the downtrend grows old. The MS trend
channel is breeched repeatedly, but is not violated
permanently. The Redistribution flirts with the Supply
Line at the conclusion of the sideways action and then
turns to a rapid decline.

Redistributions are very common, elusive and difficult to


trade. There are characteristics that can be understood,
identified and traded successfully.

Our mission is to find actionable characteristics in


Redistributions that Wyckoffians can benefit from. Here
is the problem in a nutshell. Recall that under Re-
accumulation (pause in an uptrend) a stock, index, ETF,
or commodity is being absorbed or accumulated for a
continuation of the uptrend.

Re-distribution
Quantum Stone
www.quantumstone-capital.com Capital
1 RE-DISTRIBUTION

As we have discussed in prior posts, absorption is the


activity of removing stock from the marketplace in
anticipation of a major uptrend. This is primarily the
activity of the Composite Operator whom has the
purchasing power to remove meaningful quantities of
stock from active daily trading.

Absorbing stock has the effect of reducing the volatility


of the stock, as the Re-accumulation period matures to
its conclusion, and the next uptrend begins.

At the beginning of Re-accumulation, volatility is high as


a result of the many speculator and trader types who
have latched onto the prior uptrend. The early
corrections against the uptrend are quick and volatile as
shorter term investors take profits.

Then, as the sideways trading range develops, the


corrections become more dull and contained. This is
because the C.O. and institutions are putting bids in to
buy shares on pullbacks.

Re-distribution
Quantum Stone
www.quantumstone-capital.com Capital
1 RE-DISTRIBUTION

These orders create support for the stock price. Often


the last half of the time spent in the Re-accumulation
trading range sees the price making a series of higher
lows. Recall that a primary objective of the C.O. is to
carefully accumulate shares in such a way that they
don’t force prices to begin the uptrend before all of their
buying is completed.

Contrast that with the activity taking place during Re-


distribution. A stock in a primary bear market downtrend
lacks C.O. involvement. A stock requires C.O.
ownership and active bullish campaigning to keep the
price high and rising. When the C.O. community
abandons a stock it becomes vulnerable to bear market
behavior. In a downtrend short sellers will see enough
profit that they will begin to cover their short positions.
Bear market downtrends tend to be volatile.

Short covering is a buying activity that will cause the


stock price to reverse direction and rally quickly. A short
covering rally is the beginning of the Re-distribution
trading range. A sharply rising stock price will drive
nervous short sellers out of their positions.

Re-distribution
Quantum Stone
www.quantumstone-capital.com Capital
1 RE-DISTRIBUTION

What happens during Re-distribution is that a series of


rallies and declines will occur with a general tendency
for the rallies to be sharp and volatile and the reactions
to be less so. These rallies and reactions jam the shorts
and repeats until the less resolute among them have
relinquished their positions. Only then can the
downtrend resume.

Not all C.O. types are short sellers, but the best short
sellers are Composite Operators. Their modus operandi
during Re-distribution periods is to sell short around the
top of the trading range and to potentially cover (buy to
cover) some of their position near the bottom of the
range. On balance they are increasing the size of their
short position throughout.

The reason for the buying (covering) of some part of


their short position at the bottom of the trading range is
to provide support and not prematurely push the stock
into a new downtrend before a meaningful short position
can be established. For the C.O. and institutions it is
much harder to short enough stock for a downtrend than
it is to buy stock for an uptrend.

Re-distribution
Quantum Stone
www.quantumstone-capital.com Capital
1 RE-DISTRIBUTION

Therefore Re-distribution is like the evil twin of Re-


accumulation. Born from volatility, Re-distribution
remains volatile throughout and then ends with the
emergence of another downtrend. Where Re-
accumulation ends with a whimper (typically) and the
emergence of a steady uptrend, Re-distribution remains
volatile and slides into a new downtrend with a bang.

Re-distribution begins with volatility and ends with


volatility. Typically a Selling Climax initiates the Re-
distribution process. The Re-distribution process looks
eerily similar to Distribution. A review of the process of
Distribution could prove helpful. On the ARMH case
study; cover up everything to the left of the Selling
Climax (SCLX) and compare to the schematics and
prior Distribution examples. Note the family
resemblance.

The blue labeling of the SCLX, AR and ST are there to


illustrate the similarities to the start of Accumulation.
This is classic ‘stopping action’. The red labeling
illustrates Distribution and Re-distribution attributes.
Note that once the stopping action is in place (primarily
short covering) the footprints of Re-distribution become
evident.

Re-distribution
Quantum Stone
www.quantumstone-capital.com Capital
1 RE-DISTRIBUTION

The attempt to support ARMH takes place at the ICE.


Note the series of lower price lows. This is a sign of
inherent weakness and is labeled as SOW (Sign of
Weakness). Once the ICE is broken there is no longer
enough demand left to rally back into the prior trading
range. ARMH is very vulnerable to a rapid markdown
when below the ICE.

After the Climactic action at the Upthrust (UT) the


volatility and price weakness become dominant. The
rallies are weak, short in duration, and lack sponsorship
from the C.O.

Re-distribution
Quantum Stone
www.quantumstone-capital.com Capital
2 R E - D IS T R I B U TION
SCHEMATICS

Re-distribution Quantum Stone


www.quantumstone-capital.com Schematics Capital

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