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Wednesday, March 12, 2008

Rally Follow-Through Day - Definition and Charts

Many pundits on TV are saying we failed to have a follow-through day today because the markets went down. They are wrong according to Investors Business Daily or IBD. IBD says we have to wait for the window to open for a follow-through day.

TV pundits should know the "IBD Definiton of a Follow-Through Day" but I am not surprised that so many seem to enjoy the sound of their shouting more than they enjoy sharing truly valuable information.

A Follow Through Day according to IBD:

After a significant market correction, the market will look to regain its footing. Any up day then counts as Day 1 of an attempted rally.

The next two sessions, Days 2 and 3, don't need to show much in the way of gains. As long as they don't undercut Day 1's low, the rally remains intact.

For a follow-through to occur, you want it to land between Day 4 and Day 7 of the attempted rally. On any one of those days, you're looking for one or more of the major indexes -- the Nasdaq, S&P 500 or Dow -- to rise 1.7% or more in higher volume than the previous day.

Though a follow-through in that span gives the strongest signal for a new rally, one that hits anywhere between Day 4 and Day 10 can work. Follow-throughs that occur after Day 10 yield lower success rates.
Remember a key caveat when it comes to follow-through days: Every bull market starts with a follow-through day. But not every follow-through day triggers a new bull market.

Lets watch the major markets with these graphs to see if we get a 1.7% upside day:

The "Window" for a follow-through day is March 14th through March 19th for a strong bull signal and March 14th through March 25th for a "regular strength" bull market signal, at least according to IBD.

Even the hated Financial Spyder is worth looking for signs of a real(TM) bottom.

Defintion of IBD Follow Through Day.

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