The patented answer to this anomaly is that a downtrend in prices with an uptrend in the Accumulation Distribution Line indicates underlying buying pressure (accumulation) that possibly foreshadows a bullish reversal in the security price. The Accumulation Distribution Line focuses on the level of the close relative to the high-low range for a specified period (day, week and/or month). With this formula, a security could gap down and close significantly lower, but the Accumulation Distribution Line would rise if the close were above the midpoint of the high-low range.
The Accumulation Distribution Line is an indicator based on a derivative of price and volume as such this makes it at least two steps removed from the actual price of the underlying security. Moreover, the Money Flow Multiplier does not take into account price changes from period to period. Considering the aforementioned variables the ADL cannot be expected to always affirm price action or successfully predict price reversals with divergences. Sometimes there is a disconnect between prices and the indicator. Sometimes the Accumulation Distribution Line simply doesn't work. This is why it is critical that a trader/investor employ other indicators in conjunction with the Accumulation Distribution Line to achieve a more accurate outcome in their price/trend analysis via redundancy.
By now most are aware that there is considerable trading of the channel occurring within this stock. That said I know several individuals that trade millions of shares of this stock on a daily and weekly basis whereby increasing their volume each time. The same has applied for several months at different levels. This type of trading most certainly will affect the Accumulation-Distribution signals and lend to the appearance of underlying buying pressure and the making of a bullish reversal.
I personally hold that this is one of the most important factors affecting the accumulation anomaly and quite frankly don’t give any weight to the subject of “naked trading.” Try applying other indicators, such as the OBV alongside the accumulation-distribution and I’m confident you will start to see the real picture come into focus. GLTY
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