My Indicators Have Turned Bullish

In the face of all the bad news and negative headlines concerning the economy, the market has begun to rally. This, in and of itself, is a bullish sign. The following analysis provides further evidence that the major markets may have indeed bottomed and are heading higher.

You should be familiar by now with most of the charts I use to convey the message of the market. I have added a new one, the "Follow-Through-Day". An FTD, according to Investors Business Daily,  is an indicator that confirms a trend reversal and marks the possible beginning of a new rally.

Market Snapshot

The Bulls are back in control.

Trendline Analysis

The Nasdaq Composit Index

We have had an upside trend reversal.

Market Direction Model

Impulse Indicators                                    MDM

The MDM has turned Bullish.

The Woody Indicator

(Volatility Indicator $VIX)

Fear has subsided. We are once again in the Safe Zone.

Follow-Through-Day

on the Nasdaq Composite Index

Market in Confirmed Uptrend




A follow-through-day tells us that the current rally may have some legs.
It suggests that the current move up is more than a mere short covering rally.
It shows conviction on the part of the Large Players to
push the market higher.

The FTD indicator was created by William O'neal, founder of Investors Business Daily, long ago. While not quite as effective as it was in the 80s and 90s, it is still used by IBD to confirm a new uptrend.

* Follow-Through-Day rules:

1. The initial rally off a market bottom must not be violated to the downside  in subsequent days.

2. One of the major market indexes must rise, on higher volume than the day before, by at least 1.25% in a single day within 10 days of the market bottom.

Caveat:

Effective Volume Forum Leader and HGSI User Group member, Mike Scott, is an expert in the IBD investment methodology. His studies show that FTDs that occur in the month of June or July are much less reliable than FTDs that occur in other months.

Equity Sector Rotation

During the correction all GWM Model Portfolios have been primarily invested in the safe-haven defensive sectors, such as utilities (far right column). The Equity Sector chart above shows that money is now moving into the more beaten down sectors.

On Friday I reduced our holdings in the defensive sectors. Next week I will begin moving money into the sectors that are beginning to rebound.


If the market holds up well after Wednesday's FMOC meeting, we could be off to the races for the next few weeks. If we see weakness on Tuesday and Wednesday all bets are off.


I will be taking on new positions incrementally as events unfold.

Addendum:

Past Follow-Through-Days

The last FTD that fired was in November of 2011.  It definitely proved its effectiveness as a nice rally then ensued.

Not all FTDs are followed by strong rallies; but, all strong rallies start with FTDs.

(Click on the charts for easier viewing)

It just so happens that our Impulse Indicators fired on the same days, turning the MDM all green for a good bull run.

FTD

November 2011

Market Direction Model
November 2011

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.