This chart is a daily bars chart of the S&P 500 since late April of last year, covering the huge uptrend that started in March.  The MPVT is an improved version of the OBV; I have an article coming out in the April issue of S&C Magazine describing the structure and use of this indicator.  Briefly, when plotted as shown here, if the MPVT curve follows the price, it tells you nothing; but if the MPVT diverges from the price, that’s an indication that accumulation or distribution is going on.  Here, MPVT has been diverging down from price since last September, telling us that distribution has been going on, meaning, the “smart money” have been liquidating their positions even as the market continued upwards.

In the upper pane are a pair of indicators which get more directly at accumulation/distribution.  The green curve is the 22-day average daily trading volume that occurred on up days only, and the red is the average volume on down days.  The normal behavior is that green is above red during uptrends, and the reverse in downtrends.  But, when these curves are in the opposite positions from normal, that’s telling us that the “smart money” is moving in the opposite direction from the market.  Here, we see that red has been above green since late last September (except for a brief few days in early December).  This means there has been significantly more volume traded on down days than on up days since Sept., an indication of Distribution, the “smart money” bailing out in the late stages of this monstrous uptrend.

Distribution behavior late in an uptrend is a precursor to the end of the trend.

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