Wait For Follow-Through Day Before Buying

Discussion in 'Trading' started by S2007S, Mar 15, 2007.

  1. S2007S


    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.

    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.
  2. Um kinda bad advice. the meaning of distribution wasn't even defined properly. Distribution has a more specific meaning.
  3. hels02


    REALLY bad advice. But how will they make money if they tell you how to make money? Someone has to lose money:p.
  4. duard


    Actually good advice for long term trading along with a cumulative breadth indicator. For short -term trading you'd have already been long I would imagine.
  5. Pekelo


    I keep clicking on it, but nothing comes up. Is my mouse broken? :(
  6. =============
    Good as gold, website, actually better trend info than gold.

    Wait several to 5 days for delivery of his short selling book [William O Neill].
    Unless you have it in your home office.
    How to make money selling stocks short,book by William O Neil

    Investors Busines Daily newspaper has lots of institutional clients AND Jim Cramer was an early customer;
    got another book of his with a 6 month paid subscription.:p
  7. =====================
    Same way many top traders gave away pattern fragments to Jack Schwager, and William O Neill was amoung them.

    Same way you may read something helpful in Wall Stret Journal;
    not that WSJ is as helpful as Investors Busines Daily:cool:

    IBD is far more helpful than WSJ;
    80% of businesses fail, personaly chose to be in 20% winners.:cool:
  8. Bad advice???? You know what's bad advice? Telling people "THIS IS A SHORT CORRECTION BUY NOW!!!" when institutions are dumping all their inventory they have on record volume. THAT'S BAD ADVICE!!!! Yet that's what you see on bubblevision (CNBC)... All the analysts.. from all the top 5 IB houses.. They say "BUY NOW!!!! CHANCE OF A LIFETIME!!!" in the same second their very own trading desks are dumping 1000's lots of SPX contracts on the bid.

    You ever see anybody say "OK MAYBE ITS TIME TO TAKE SOME CHIPS OFF THE TABLE AND WAIT UNTIL THE SMOKE CLEARS". No. The analysts would never say that. Cause they have products to sell and they can't goto their dentist clients and sell them wealth management services for 2% annually while they suggest to be 100% in cash. Nobody pays fees for an ivy league MBA or PH.D. advisor when they're 100% in cash. So analysts make sure they never goto 100% cash. That's how Wall Street works. Never ever tell a client to sell. "Just hold. It will be OK".

    Here's a good book that covers this topic: http://www.amazon.com/Where-Customers-Yachts-Street-Marketplace/dp/0471119784 ... Written almost 60 years ago. Some things never change.

    O'Neill is a smart cookie. And he is NOT part of the Wall Street machine. He is one of the few anti Wall Streeters out there. If the average stock investor used his framework during 2000-2006 they would have +100% in their accounts now instead of +/- 0%.
  9. Makloda, you never cease to impress me.

    You're one of the few people who takes both bullish and bearish short-term viewpoints with logic and explanation I almost always find compelling.
  10. duard



    You're too funny. I envision you vigorously shaking stock_trad3r buy the shoulders while his head swings back and forth yelling at him. Dude, get a clue!!!

    Nice post. All is not as it seems. In fact it is often backwards.

    Good Luck
    #10     Mar 16, 2007