IBD Meetup Investor Education Series

Lesson 1: How to Spot Market Tops

When a market tops and begins to decline, it typically takes 3 of 4 stocks down
with it. Thats why its critical you learn to spot market tops. Learn More About
Market Tops
Together with your local IBD Meetup group discussions, here are 3 key ways to
spot a market top. Youll learn how to proactively protect your money when the
market direction begins to change. Articles
4 Use The Big Picture, Tools
Spot Market Tops by Counting Distribution Days To Gauge Market
Look for a growing number of distribution days in a major index: the S&P 4 Learn To Recognize
500, Nasdaq Composite, Dow Industrials, or NYSE Composite. Distribution In Chart
Distribution is just another word for selling, and a distribution day is when
4 Think Defense When
one or more major market index closes down more than 0.2% on increased
volume from the prior day. Market Turns Sour

Stalling action, or heavy volume without further price progress up, is also Videos
counted as distribution. Thats when volume on an index is higher than the
day before, but the price increase is significantly smaller than the prior days 4 Reduce Your Holdings In
much larger increase. A Down Market
When distribution days start to grow, it means the big institutional investors, 4 Know When To Get Into -
like mutual funds, banks and insurance companies, are selling more shares. And Out Of - The Market
If you get 5 or 6 distribution days over any 5-week span, the general market
almost always turns down. Free Online Courses
4 Spotting A Market Top

4 Market Direction

Free Downoads

3
You can see the current number of distribution 4 How You Can Recognize
days in the Market Pulse graphic in The Big Market Tops and Market
Picture on page A1 in IBD each day. Bottoms

Nasdaq Top in 2007

See how counting distribution days helped investors
lock in gains and minimize losses in the 2007 - 2008
financial crisis. Watch Video Get the How to Make Money in
Stocks Complete Investing
Exclusive Interview with William J. ONeil System by IBD founder William
When to Get Into - and Out of - the Market J. ONeil. Includes everything
Hear IBDs founder discuss the rules of successful you need to get started.
Learn more
market timing in this excerpted interview from 2008.
Listen Now

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 IBD Meetup Investor Education Series
Lesson 1: How to Spot Market Tops

Other Indicators of a Market Top

How to Protect Yourself
a Watch for Weak, Abnormal Action in Leading Stocks When the Market Tops
A sign the market may be topping is when leading stocks start showing
weakness.
4 Cut ALL losses short
By leading stocks we mean companies outperforming all other stocks in
terms of earnings and sales growth, profit margins, return on equity, relative Regardless of market condi-
price strength and other key measures. These leaders serve as a bellwether tions, always sell if a stock
for the overall market. When they start to show clear weakness, the overall drops 7% - 8% below your
market is not far behind. purchase price.

Signs of abnormal behavior in leading stocks can include Sell even sooner if distribu-
Late-stage bases: If most leading stocks have had big runs in the tion days are mounting and
bull cycle, and theyre now breaking out of 3rd or 4th stage bases, the your stocks are showing
broad market could be running out of steam and ready to correct. weakness.
(Learn more about late stage bases).
4 Get off margin
Climax tops: A climax top is essentially when a leading stock makes Play it safe and dont com-
a huge, final surge over 7 to 10 days after advancing for many months. pound any losses by staying
Its a sign the party may be ending. (Learn more about how to spot on margin.
climax tops).
4 Lock in your gains
How 2007 Breakdown Of Leaders Warned Investors
See how even the leading stocks faltered, then sold off hard During the early phase of a
when the market topped in late 2007. Watch Video bear market, certain leading
stocks may seem to hold up.
But dont be fooled! Most will
eventually fall with the rest of
a Beware If Low-Quality Stocks Start Leading the market. Be sure to proac-
tively lock in some or all of
When stocks that led the current uptrend falter and lower-priced, lower- your gains.
quality, speculative stocks start to lead, watch out! If the best stocks cant lead
the market higher, the worst ones certainly arent going to do so for very long.

At Your Next IBD Meetup

Be sure to attend your
groups next meeting to get:
More info on market tops
Insight into the current
market & how to handle it

3
If Leaders down in volume start to regularly Stock ideas to help you build
outnumber Leaders up in volume in the Market your watch list
Pulse, it may mean the market is topping.
....and much more!
www.investors.com/meetup

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