Follow-Through-Day Registered on the NASDAQ Index, Indicating a Probable End of the Correction

After a 7.46% decline in the Dow Jones Industrial Average, the correction may have run it's course. When one of the major market indexes reveals evidence that large institutions are once again buying stocks in volume, odds favor a resumption of the uptrend.

Our Follow Through Day (F-T-D) indicator marks an initial rally day (the blue dot in the chart below) following a market low (the green dot). The market must hold above this rally day level going forward (the grey dots) for 4 to 10 days or more. We then look for a Follow-Through-Day, (2 magenta dots), as confirmation that the new rally may be sustainable. The F-T-D is  characterized as another big up day on greater volume than the previous day.

This is more info than you probably wanted to know. Suffice it to say, it is now safer to go back in the water. 

Next week I will be adding back positions in earnest. The most attractive investments will be those that held up best during the correction; The strongest candidates are revealed in market down-turns.

(Click on Chart for Easier Viewing)

Follow-Through-Day Indicator

Market in Confirmed Uptrend

* With corrections of 8% or less, the market normally recovers rather quickly.

* From a historical perspective, when markets correct more than 8%,  there is no telling how much further they could decline, i.e., July to October 2011. This is the precise reason that risk management is an important part of our portfolio management style.

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.