Those that read my posts probably consider me to be anti-chartist when it comes to gauging the stock market for practical purposes. Well, to some extent that's true but I do however, maintain a strong belief in the IBD/Stan Weinstein method for picking stocks. (I'd like to touch on this method of stock/index/ETF investing in a future blog post, so I'll be brief here). Breakout trades or 'trading out of the box' can be very powerful and forceful if an investor can get in on the ground floor, but can be dangerous as chasing the break is essentially what provides the fuel for the breakout rally.
For those that don't know of the Follow Through Day (FTD), this is from IBD:
While the FTD doesn't call a turn every time, according to IBD a bear market may be turning to a new bull market if:
2. On 11/21 the put/call ratio was at 1.12
3. I don't know. Anybody seen any bears running around lately?
For those that don't know of the Follow Through Day (FTD), this is from IBD:
Last week, the major averages indicated the 6th Follow Through Day of 2008 on December 2nd. One thing I've found with FTD's is that they aren't nearly as effective in a bear market as they are in a bull market as many have failed miserably thus far. Something to consider though if one is bearish is that a FTD has been present prior to every bear market rally we've witnessed in 2008. IBD also claims that the preceding rally after the FTD is more credible the closer to day 7 of a rally attempt. The FTD on 12/2 occurred on the 7th day of the rally attempt that began on 11/21.From the beginning of any attempted market rally during a definite downtrend, a 'follow-through' day is identified when the index closes up 1.7 percent or more for the day on a significant increase in volume from the day before. The first two or three days of a rally are normally disregarded, as the rally has not yet proven it will succeed and 'follow through' with power and conviction. 'Follow-through' days therefore generally occur the fourth through seventh day of the attempted rally. They serve as a confirmation that the market has really changed direction and is in a new uptrend.
While the FTD doesn't call a turn every time, according to IBD a bear market may be turning to a new bull market if:
1. We've got our FTD.- Market rally in a key index follows through in price and volume. Be careful not to jump into a rally on the first through third day. For a valid follow through day, look for an increase in total market volume from the day before and substantial price progress for the day up at least 1.7% or more in any major index. If the rally follows through anywhere from the fourth to tenth day of the rally (preferably from the fourth through seventh), it is an indication of a new uptrend. The follow through indication can occur on any one index: the Dow, S&P 500, or Nasdaq Composite.
- The ‘Ratio of Trading Volume in Puts vs. Calls’ climbs above 1.0.
- Another indicator would be when almost everyone is either scared to death or hesitant and disbelieving that the market has turned and it's time to buy.
2. On 11/21 the put/call ratio was at 1.12
3. I don't know. Anybody seen any bears running around lately?
