Distribution is a sign of increased selling of stock by large institutions. For Hong Kong, we define a Distribution Day as the Hang Seng closing down 0.2% or more on increased volume from the previous trading day.
Our studies have shown that four to six days of distribution over a period of four or five weeks are enough to turn a previously advancing market into decline. Therefore, once you notice signs of distribution, it is best to hold off on any further stock purchases, and perhaps even cut back on some positions, especially if you are on margin.
Distribution Days lose relevance over time and can be discounted as they age beyond 25 trading sessions, or when the market shows significant gains since the Distribution Day.