Investor's Business Daily
Wait For Follow-Through Day Before Buying
Tuesday March 13, 7:00 pm ET
Donald H. Gold
The stock market has begun a correction. If you've followed a sound set of sell rules, you're either completely out of the market and in cash, or maybe holding a few stocks that have weathered the storm.
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In the meantime, you should build a watch list of top-rated stocks showing resilience, while waiting for the signal that the market has resumed its uptrend.
That signal is a follow-through day, a big gain by one of the major indexes -- the Nasdaq, S&P 500, New York composite or Dow industrials -- of about 1.7% or more. Volume on a follow-through day must be higher than in the previous session.
This big gain on an increase of volume must come during an attempted rally. Simply put, any up day or positive reversal following a fresh low counts as Day 1 of the rally try.
Days 2 and 3 of the attempt aren't all that important. As long as the market doesn't show significant distribution during this time, the count remains intact. IBD studies of successful market rallies show that a valid follow-through should occur on Day 4 or later of the count.
If the major indexes undercut the low marked on Day 1, the count begins anew.
Nobody knows if the current correction will last days, weeks or months. But following the daily price and volume action of the major indexes and looking for a valid follow-through takes a lot of the guesswork out of the equation.
Just remember: No market rally has ever started without a follow-through day. But not every follow-through launches a market rally.
You also want to see leading stocks show strength as the market follows through. When top-rated stocks break out of well-formed bases, that's another sign that the rally could be for real.
The last time we saw a follow-through was Aug. 15 (point 1). The Nasdaq soared 2.2% in Day 21 of the attempted rally. Volume totaled 1.8 billion shares, higher than the previous day's total of 1.5 billion. Remember, volume on a follow-through day must rise from the previous session. It doesn't have to break any records, or even be above average.
The follow-through pushed the Nasdaq into a new uptrend. The index climbed 20% over the ensuing six months.
Don't try to get a jump on the market by buying before a follow-through. The market could turn at any given moment, and knock you out with quick, nasty losses.
If a follow-through does occur, take it slow. Buy smaller positions in stocks at first. If the market keeps climbing, then you can start ramping up your investments.
Wait For Follow-Through Day Before Buying
Tuesday March 13, 7:00 pm ET
Donald H. Gold
The stock market has begun a correction. If you've followed a sound set of sell rules, you're either completely out of the market and in cash, or maybe holding a few stocks that have weathered the storm.
ADVERTISEMENT
click here
In the meantime, you should build a watch list of top-rated stocks showing resilience, while waiting for the signal that the market has resumed its uptrend.
That signal is a follow-through day, a big gain by one of the major indexes -- the Nasdaq, S&P 500, New York composite or Dow industrials -- of about 1.7% or more. Volume on a follow-through day must be higher than in the previous session.
This big gain on an increase of volume must come during an attempted rally. Simply put, any up day or positive reversal following a fresh low counts as Day 1 of the rally try.
Days 2 and 3 of the attempt aren't all that important. As long as the market doesn't show significant distribution during this time, the count remains intact. IBD studies of successful market rallies show that a valid follow-through should occur on Day 4 or later of the count.
If the major indexes undercut the low marked on Day 1, the count begins anew.
Nobody knows if the current correction will last days, weeks or months. But following the daily price and volume action of the major indexes and looking for a valid follow-through takes a lot of the guesswork out of the equation.
Just remember: No market rally has ever started without a follow-through day. But not every follow-through launches a market rally.
You also want to see leading stocks show strength as the market follows through. When top-rated stocks break out of well-formed bases, that's another sign that the rally could be for real.
The last time we saw a follow-through was Aug. 15 (point 1). The Nasdaq soared 2.2% in Day 21 of the attempted rally. Volume totaled 1.8 billion shares, higher than the previous day's total of 1.5 billion. Remember, volume on a follow-through day must rise from the previous session. It doesn't have to break any records, or even be above average.
The follow-through pushed the Nasdaq into a new uptrend. The index climbed 20% over the ensuing six months.
Don't try to get a jump on the market by buying before a follow-through. The market could turn at any given moment, and knock you out with quick, nasty losses.
If a follow-through does occur, take it slow. Buy smaller positions in stocks at first. If the market keeps climbing, then you can start ramping up your investments.
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