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So, what is it with my focus on Demark Indicators? Well, if you’ve followed my tweets you’ll know I have been making a big deal out of the recent Combo setup, a 9 followed by a 13. Well, we followed that with another 9 and a failure if I have this technique straight.
The bottom-line is this, whether you like or dislike his calls, big money follows him. And, if you’ve been trading for any length of time you know that big hedge funds can’t exit in one day. That’s where the term “distribution days” comes from. Hedge funds and managers can’t possibly exit their entire position in a major holding in one day, so they do it in several days, where the higher volume is obvious. Today’s SPX volume was higher than yesterdays.
So, back to Demark. He explains the concept as “exhaustion”. When you hear him on CNBC and he says we’re about to complete a “13 count” smart money listens. It doesn’t mean we’ll immediately drop the next day as I originally thought. Smirking, not really, I just say that for emphasis as many people don’t understand the technique. It simply means given the past 9 or 13 count or combination of the two, odds are exhaustion will lead to a consolidation sooner rather than later.
Ok, so you’re a hedge fund and a 13 count is put in after a 9 count, a so called “Combo”. See my chart below where I annotated a 9 and 13 followed by a 9 count. What do you do if you’re Mr. Hedge Fund Manager? Well, given what I said earlier about distribution they either start selling some of their position or wait till a confirmation is put in. If I were sitting on 1 or 2 million shares of U.S. Steel, as an example, I’d be scaling out, the same way we do as day-traders. That shows up on a chart as exhaustion or distribution.
Can we continue higher? Certainly. Nothing about Demark Indicators makes it an end all indicator, it simply means you need to know more. Please read my synopsis on my website as I will continue to add more from Jason Perl’s book as I study this indicator further.
Note the 9,13, and additional 9 count we put in on the SPX cash today. (note this was at 9:30 AM this morning). Now we have two days of selling, with today on slightly higher volume than yesterday, despite the A/D and positive breadth.
Also, note the ratio trade with equal measured moves from the November low. We also closed right near a point and figure level. Yellow flags keep piling up.
It will be very interesting to see how this pans out tomorrow. For now, I am long term bullish looking for a 5% pullback. I note targets and % pullbacks on the chart if we settle 1476 or 1404 over the next couple weeks.
Happy Trading -CV