If anyone tells you they know for certain what the market is going to do, they are trying to sell you something. With IBD's time-tested research, we deliver a daily analysis of the major indexes. While not predicting the market, we identify the signals that have proved to be indicative of future market movement.
Being aware of these signals is a key factor in successful investing.
One of the most important stock market topping signals is distribution. That's when the Nasdaq or S&P 500 falls at least 0.2% in heavier volume than the day prior. IBD founder William O'Neil considers distribution to be his primary indicator for market tops. It signals that institutional investors are beginning to unload their positions, selling more than usual.
While distribution is a perfectly normal piece of a healthy market, too many distribution days over a period of several weeks can signal the top of the market.
Stalling is a form of distribution, but one easy to miss. To the untrained eye, it appears to be a day up in the market.
You may have heard the term, "heavy volume without further price progress" mentioned across IBD. That's exactly what stalling is: An index climbs up but gives back the majority of its gain by the day's close.
Signs Of Stock Market Stalling
An index close in the lower half of its intraday price range is one sign of stalling. There are a few others.
First, the index rises but no more than 0.4%. Second, volume must be greater than in the day prior session. Third, the index must have a 0.2% gain in one of the two days prior. This means there was meaningful progress made and the index is unable to maintain momentum.
There are a few more very specific rules regarding price highs as well as how and when stall days are counted in the overall distribution count. These complicated details are important, which is why the best way to track stalling on the indices is to read IBD's daily analysis of the stock market, The Big Picture.
The specifics of stalling and other market direction signals are described in IBD's Market School home study program.
Not all up-days are created equal. Your key takeaway here should be that when an index closes in the lower half of its range with more volume than the day before, there is more net selling than buying. That is stalling and stalling is distribution. And distribution is bad.
Stalling At The 2021 Stock Market Top
Though 2021's market run-up officially ended in November, you could see the warning signs as early as September.
While the Nasdaq climbed Sept. 1, it closed near the lows of the daily price range with volume up 1.4% from the previous session.
This signal gave savvy investors three trading sessions to begin trimming before the other shoe dropped.
Sept. 8 marked the beginning of five weeks of a choppy downtrend, getting to the lowest point since July 2021.
