Welcome. The contents of this blog comprise my personal observations on the stock market from the perspective of using both fundamental and technical analysis by reviewing market data and stock charts based on the methodologies of William O'Neil of Investors Business Daily and his books, from Stan Weinstein's books, and most of all, through lessons learned over the years by listening to Gary Kaltbaum's "Investor's Edge" radio show on Business Talk Radio.

Criteria of stocks include first researching sectors to determine which are strong and which are weak using the ADX indicator (>40 = increased volatility); focusing in on a leading sector and buying leading stocks on a high volume
breakout (minimum 2x average) above a base; stock prices are higher than $25/share with daily average volume higher than 300K; positive and increasing PVT (indicating institutional ownership), positive and increasing RSI (indicating relative strength compared to other stocks in the market).

Please keep in mind that
I am by no means an expert, nor are my posts intended for anything other than to share my opinions of what stocks are doing for the purpose of getting feedback. Thus, please do your own research before taking action on what you read here. I will be adding posts on topics of interest as I learn about them.

Tuesday, July 29, 2008

We had a follow through day today.

This afternoon, something momentous happened today in the stock market -- we had what is called a follow-through day. Generally, a "follow-through day" is what is known as a reversal from one trend into another trend (here, from a bearish downtrend to a bullish uptrend.) A follow-through day happens when in the midst of a bear market (or at any point) the market surges against the trend and closes up. This is the first sign of a possible reversal in the trend. However, the reversal is NOT complete until there is a follow-through a few days later (I believe at least 3-4 minimum because the days immediately after the start of the reversal don't count) where the stock market confirms the initial reversal with a significant increase in the price of the stock (in the case of a bullish reversal) of 1.7% on high volume in the direction of the reversal.

In short, if the market is in a bearish trend and the stock one day jumps, we wait at least 3 days before looking for a follow-through day. The confirmation [that we are no longer in a bearish trend and that for the time being, we are in a bullish uptrend] occurs when the index of choice (or all of them) increase 1.7% each on high volume.

Around 11 or 12 days ago, we had our first sign of a reversal. Now, 11 or 12 days later (more than 3 as you can see), we had our confirmation. The Dow jumped +266.48 points (+2.39%) to $11,397.56; The Nasdaq jumped +55.40 points (+2.45%) to $2,319.62; and the S&P 500 jumped +28.82 points (+2.33%) to $1,263.19. Hence, we have a follow-through day.

Now remember what this means. We now have a reversal where for now, we are no longer in a bearish phase, but we are in a bullish phase which means that the stock market is likely to continue going higher (and consequently so will the stocks based on the relative strength of each sector), BUT REMEMBER! The bullish uptrend can be killed tomorrow with a huge distribution day, or two, or more. This is something to watch out for. All a confirmation day means is that we are now going up. For how long or for how much, we don't yet know. We'll have to just wait, watch, and see. Set stops below your purchases and just be responsible about your investing, knowing that at any day, the bear market can resume.

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