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Rotation Patterns Explained with Stock Indicators
Buy Side Institutions Using Dark Pools
Most Technical and Retail Traders have heard about Buy Side Institutional Accumulation and Distribution, but few understand another institutional action which is ROTATION.
Accumulation is the acquiring of hundreds of thousands, to millions of shares of stock over an extended period of time. Quiet Accumulation is the most common nowadays which is when institutions use Dark Pools aka Alternative Trading Venues that do not show their activity on the exchanges. Buy Side Institutions are able to hide their 100,000 – 500,000 share lot activity from High Frequency Traders HFTs, Independent Investors, Retail Traders, and Small Mutual Funds and Small Pension Funds Managers by using the Dark Pool venues. This enables them to buy large to giant quantities of stock over time without disturbing price. The primary difference between exchange activity and Dark Pool activity is the ability of the Buy Side Institutions to not alter the trend that is underway at that time.
Buy Side Institution Quiet Accumulation INCREASES the amount of money in the stock market fueling Bull Markets and Uptrends, even though the Institutions buy in such a way so that price does not move much when they are buying.
Distribution is the selling of a large quantity of stock overtime, OR because of redemption demands. High redemption demands tend to occur near the end of an Intermediate Term Correction or the end of a Bear Market. Therefore Dark Pool Distribution is often faster than Dark Pool Quiet Accumulation. Dark Pool Distribution is when Buy Side Institutions sell huge quantities of stock without moving price much.
Buy Side Institution Quiet Distribution REMOVES money from the stock market, which fuels more downside selling.
Rotation patterns occur during the mid to final years of a Great Bull Market, which is a Bull Market that lasts for more than 4 years. Quiet Rotation™ is the systematic, and carefully calculated selling of shares of one stock and the buying of another stock. Rotation patterns tend to slowly bend trends either into a Bowl Bottoming Formation OR into a Rounding Top Formation. Platforms are also a common pattern for Rotation, into or out of a stock.
Quiet Rotation does not remove money from the Stock Market. Instead it merely MOVES MONEY AROUND from one industry to another and from one stock to another.
The chart below with a monthly view shows the commencement of a Rounding Top Formation that developed due to steady Quiet Rotation over the past several months.
This stock is slowly losing Institutional percentage holdings as these giant institutions quietly rotate out. Their goal is to not disturb the Uptrend buying frenzy of Independent Investors, new Investors, and Retail Traders who rely upon recommendations and gurus for stock picks. As the stock moves up with smaller lot buyers who have less capital than the giant institutions, the trend slowly bends under the weight of the large to giant lot Quiet Rotation of the giant Buy Side Institutions.
This is a critical pattern to recognize for Technical and Retail Traders especially in highly popular recommended stocks, as weakening trendlines due to Quiet Rotation are harder to see in candlestick patterns early on.
What is essential to have are indicators that reveal the Dark Pool Rotation patterns before price begins to bend and round, which can create whipsaws for Swing and Day Traders resulting in losses that could have been avoided.
The TechniTrader Volume Accumulation TTVA and TechniTrader Flow of Funds TTFF indicators clearly show the steady Quiet Rotation pattern over time, even as price moves up. This allows Technical and Retail Traders to avoid entering a stock that is actually weakening into a Rounding Top Formation, rather than what at first may appear to be merely a consolidation or sideways pattern.
By recognizing Quiet Rotation Patterns early on enables Technical and Retail Traders to be prepared for Corrections and Selling Short, by Swing Trading the downside action if they have the education.
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Martha Stokes CMT
TechniTrader technical analysis using a MetaStock chart, courtesy of Innovative Market Analysis, LLC dba MetaStock
Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
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