Distribution events: from preliminary supply to the last point of supply
Module 9 gave you the phases; this one details the events. Each distribution event is the mirror of an accumulation event, but reading them is harder because tops are driven by greed and littered with false new highs. The sequence, preliminary supply, buying climax, automatic reaction, secondary test, sign of weakness, upthrust after distribution and last point of supply, lets you track a topping range from the climax that stops the rise to the rally that launches the markdown. Learn each event's price and volume signature and distribution becomes a checklist rather than a guess.
Preliminary supply (PSY) and the buying climax (BC)
Preliminary supply is the first sign that selling is appearing during the uptrend: a bar where the rise slows and volume picks up, hinting that large holders are beginning to sell into strength. It rarely stops the advance alone. The buying climax is the event that does: a wide-range up bar on very high volume where eager public buying, often on bullish news, is absorbed by heavy selling, frequently closing well off its high. The BC marks the extreme of the range and the point of maximum greed. Its high becomes the resistance the rest of the schematic is measured against.
The automatic reaction (AR)
The automatic reaction is the sharp drop that follows the buying climax. With demand suddenly exhausted and early buyers taking profit, the smallest supply sends price down quickly. The AR confirms that buying pressure has dried up, and its low sets the support of the trading range. Together, the BC high and the AR low draw the box distribution will take place inside. A deep, fast AR suggests supply is already heavy; a shallow one suggests more distribution is needed before the structure resolves lower.
The secondary test (ST) and upthrust (UT)
The secondary test is a rally back toward the buying climax high to check for remaining demand. A revealing ST reaches the high area on lighter volume and a narrower range, or makes a lower high, showing buyers are no longer urgent. Often the ST takes the form of an upthrust (UT): a push slightly above resistance that fails and closes back inside, trapping breakout buyers. Repeated upthrusts through Phase B that cannot hold their gains are a strong tell that supply is being distributed into every rally.
The sign of weakness (SOW)
The sign of weakness is the Phase D event that proves supply has won: a wide-range decline on expanding volume that breaks the range support or a key internal low, showing demand can no longer hold price up. It is the mirror of the sign of strength. The SOW often moves price down to or below the support set by the automatic reaction, changing the chart's character to clearly bearish. After a SOW, rallies should fail, and the next rally that fails becomes your entry. A genuine SOW comes with real downside result on the volume, not just a drift lower.
The last point of supply (LPSY)
The last point of supply is the rally that fails after the sign of weakness: a lower high on weak, unconvincing demand that stalls at or below the broken support, now acting as resistance. It is the mirror of the last point of support and the textbook short entry. The weak volume on the rally is the tell, there is no real demand behind it, so price is ready to roll over into the markdown. Several LPSY points can form as the markdown begins. The stop sits just above the lower high, giving a tight, logical risk.
Reading distribution events on gold
On gold, distribution events cluster at the highs of H4 and daily ranges, frequently around bullish news that produces a buying climax and upthrusts. Because tops are messy, require the law of effort versus result at each event: a buying climax should show huge volume with a poor close, an upthrust should fail on effort, a sign of weakness should break support with real downside result. Tick the events off as they form, and only take the short once the sign of weakness and a last point of supply confirm supply is in control. A range that keeps making genuine new highs on expanding demand is not distributing, so do not force the label.
FAQ
What is the difference between preliminary supply and the buying climax?
Preliminary supply is the first hint of selling during the uptrend, where the rise slows and volume ticks up but buying is not yet stopped. The buying climax is the dramatic wide-range, high-volume up bar where eager public buying is absorbed by heavy selling, marking the high of the range.
What is an upthrust in distribution?
An upthrust is a push slightly above the range resistance that fails to hold and closes back inside, trapping breakout buyers. It is the mirror of a spring. Repeated upthrusts through Phase B that cannot hold their gains show supply is being sold into every rally.
What is a sign of weakness?
A sign of weakness is a wide-range decline on expanding volume that breaks the range support or a key internal low, proving demand can no longer hold price up. It is the mirror of the sign of strength and turns the chart clearly bearish, usually dropping price to or below the automatic reaction low.
What is a last point of supply?
It is the weak, lower-high rally that fails after a sign of weakness, stalling at or below broken support now acting as resistance. The feeble volume shows no real demand remains, so it is the textbook short entry, with a tight stop just above the lower high.
Why must I be more careful reading distribution than accumulation?
Because tops form amid greed, so the action is choppier, volume stays high and erratic, and false new highs are common. You must insist on effort versus result at each event, a poor-close buying climax, a failed upthrust, a decisive sign of weakness, before trusting the distribution read.