Welcome:
Lesson 5:	Part 1 - Continued

Sector Distribution Curves:

Since there are 40 different sectors, one table or an aggregated format of showing a composite picture of all the sector bullish percent charts would be helpful. Around the mid 1990's DWA created the "Sector Distribution Curve" as a way of pictorially showing where all the sectors were on their bullish percent charts.
The Sector Distribution Curve is created by taking the vertical axis of percentages, 0% to 100%, and flipping it to the horizontal axis. Then, we simply place the sector symbol above the point on the horizontal scale which correlates to its bullish percent chart. This provides a terrific composite picture of risk in the overall market since the sectors make up the market. If most of the sectors are above the 50% level and skewed to the right hand side, that means they are residing in the "Red Zone" or higher risk area of their bullish percent charts and we can conclude that risk in the overall market is high. Conversely, if most sectors are skewed to the left hand side of the curve we say this is an oversold or low risk condition. Let's take a look at what the distribution curve picture would have been showing in 1987, before and after the stock market crash.

Again, when the Sector distribution Curve is skewed to the right hand side, everyone who wants to be in the market is in and there isn't much opportunity left. This is when things look the best but really it is when caution is warranted. Another important tidbit of information from the distribution curve is the uppercase and lowercase letters. Uppercase is for those sectors whose bullish percent charts are in a column of X's and lowercase is for those sectors whose bullish percent charts are in O's. This allows you to easily see which sectors are on offense and which are on defense.

Over the years we have continued to develop this Sector Distribution Curve. Today, a distribution curve will look something like below. The average level of the sector bullish percents is listed at the top. As well, any change in column on the bullish percent chart will be written in red. And, each sector has been shaded red, yellow, or green. This color coding corresponds to the sector's overall relative strength reading or Favored/Unfavored status. We'll cover this in Part 2 of this lesson.

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