ACCUMULATION /DISTRIBUTION

 

Overview

The Accumulation/Distribution is a momentum indicator that associates changes in price and volume. The indicator is based on the premise that the more volume that accompanies a price move, the more significant the price move.

Interpretation

The Accumulation/Distribution is really a variation of the more popular On Balance Volume indicator. Both of these indicators attempt to confirm changes in prices by comparing the volume associated with prices.

When the Accumulation/Distribution moves up, it shows that the security is being accumulated, as most of the volume is associated with upward price movement. When the indicator moves down, it shows that the security is being distributed, as most of the volume is associated with downward price movement.

Divergences between the Accumulation/Distribution and the security's price imply a change is imminent. When a divergence does occur, prices usually change to confirm the Accumulation/Distribution. For example, if the indicator is moving up and the security's price is going down, prices will probably reverse.

Example

The following chart shows Battle Mountain Gold and its Accumulation/Distribution.

Battle Mountain's price diverged as it reached new highs in late July while the indicator was falling. Prices then corrected to confirm the indicator's trend.

 

Calculation   


 

A portion of each day's volume is added or subtracted from a cumulative total. The nearer the closing price is to the high for the day, the more volume added to the cumulative total. 

The nearer the closing price is to the low for the day, the more volume subtracted from the cumulative total.

 If the close is exactly between the high and low prices, nothing is added to the cumulative total.

ADVANCING, DECLINING, UNCHANGED VOLUME

Overview

Advancing, declining, and unchanged volume are all market momentum indicators. They reflect movement on the New York Stock exchange in millions of shares.

Advancing volume is the total volume for all securities that advanced in price. Declining volume is the total volume for all securities that declined in price. And similarly, unchanged volume is the total volume for all securities that were unchanged in price.

Interpretation

Numerous indicators have been developed using up and down volume indicators. These indicators include the Cumulative Volume Index, Negative Volume Index, Positive Volume Index, and the Upside-Downside Ratio. Charts of the advancing or declining volume can be used to look for volume divergences (where advancing volume increases but the market falls) to see if selling pressure is waning, to view daily trends, etc.

Due to the erratic fluctuations in advancing and declining volume, I suggest you smooth the indicators with a 3- to 10-day moving average.

Example

The following chart shows the S&P 500 and a 10-day moving average of advancing volume.

  

A bearish divergence developed as prices tried to rally (trendline "A") while the advancing volume was declining (trendline "B"). If you only looked at the S&P 500 you might think the market was gaining strength. The Advancing Volume showed the true picture and prices were forced to correct