I am specially proud of this case study on identifying accumulation and distribution through price action. This one is based on SECB.
SECB 2010-2015. Box patterns , peaks and time frames
Percentage gains provide guidance on the stage of accumulation/distribution cycle
SECB price increments and the amount of time it took to accumulate and distribute are shown in the chart below. For two months, from June to August 2012, prices traded within a range with a price increment of P8.75. The price broke out on August 2, 2012 and exceeded its next price target when it reached P129.16, a 2.5% gain from the box breakout.
As prices broke out of succeeding boxes , consolidation time became shorter while the price increments within the boxes started to increase. For example, from June to Aug 2012, the increment was P8.75 over a 50-day consolidation. Here, early speculators and possibly insiders quietly accumulate shares. In the box that followed, the increment was higher at P10 while the consolidation period was shorter , at 39-days. It is in this box (Box 2) that more speculators compete to acquire shares, thus , prices increased faster and supply is easily depleted within a shorter amount of time. At this point, risk / reward ratio is favorable enough for more big players to take notice.
The box consolidation that followed (Box 3) from Jan to April 2013, took 3 months, much longer than Box 2. This is where the general public starts to take notice and accounts for a larger percentage of the buying and selling. The price increment for this box is at 14.76, much higher than Box 2 because the stock is more volatile , owing to increased interest in the stock .
The price of SECB peaked at 172 . This box range had the highest increment value, at P16.17, while the box had taken a shorter period of time to complete. This shorter consolidation and higher price increment combination was a sign of distribution . The volatility experienced at this point was fueled by fear and greed. Correspondingly, a reversal followed. That box at the peak was like honey to a bee . It promised the highest possible gains within a shorter period of time.
During the distribution phase, the same trend is noticeable . From a slow distribution at the top, the drop in prices started to accelerate on the way down, and at shorter time periods, until the bottom was reached.
The chart below shows the inverse relationship between time consolidation and gains. On the way up , consolidation periods have shortened as price increments increased. After a stock is accumulated and later breaks out from a long consolidation, prices encounter less resistance, thus price increments increase within boxes. Capitulation is experienced after an above average price increase within a short time, which signals distribution.
Note that there is a steady loss of 3.7% in the first two boxed consolidations during the downtrend. On the 3rd box from the peak, the losses are huge over a shorter time period , suggesting selling capitulation, until a sign of reversal occurs when the stock price bottoms at P88 when an 8% gain is registered at the bounce.