Archive for January, 2008|Monthly archive page

Follow Through Day


As mentioned yesterday, it’s the day after the Fed’s announcement that usually gives a better indication of the market’s next move.

Thursday’s reversal from lows on heavy volume tells us UP is going the be the path of least resistase.

We also had a legitamate Follow Through Day (FTD) on the Nasdaq as it rallied 1.7%. Remember, a FTD must happen after four days of a market low with one of the major indexes advancing at least 1.7%. The Dow and S&P 500 put in moves that were almost 1.7%.

Toss in aggressive rate cuts from the fed and a government stimulus package on the way, there’s lots to be bullish about right now. Think, if the market can’t rally now, when could it?

While a near-term rally may be in store, it may also be short-lived if strong leadership doesn’t step forward. More on this in our weekly report.

Don't fight the tape!

Don’t fight the tape!

We have to remain Bears, as Wednesday’s distribution is just one more piece of evidence of its dominance.

The Fed’s 50 basis point rate cut comes nine days after an emergency 75 basis point cut.

Where the market rallied nicely from lows after the emergency cut, it has closed the day in negative territory after the latest cut.

But it’s usually the day after a rate decision that the market’s intermediate trend becomes apparent.

Not enough

If you look really close you can see Tuesday’s buying volume came in just a tick above Monday’s.

This is not the type of buying that qualifies as a Follow Through Day (FTD). What we need is a move of near 2% on a major index with heavy buying volume. This would tell us that institutions are supporting the market.

Until we see that, we’re going to assume it’s still a Bear out there.

Ready to rally

Tuesday’s panic selling felt like the capitulation we’ve been looking for.

Wednesday’s sharp turnaround from new lows gives us indication the market is ready to rally.

If we consider today a potential low, we want to begin looking for a follow through day for an indication of institutional buying beginning Tuesday next week.

Vicious!

A massive global sell-off, but it’s a holiday in the U.S. What does that mean going into Tuesday? With the S&P 500 losing about 60 points on the futures index, we’ll see a sizable gap down for Tuesday’s open.

This could be the capitulation we’ve been talking about in our report. But maybe not. The best thing about our strategy is that it keeps us safe. We saw distribution set into the market weeks ago.

There is some major pain being experienced by traders out there. Be glad it’s not you.

Still a bear

Not much to say, it’s still a bear and we’re only happy because we saw the warning signs long ago.

Tuesday marked the fourth day of distribution in two weeks for the S&P 500.

Not so enthusiastic

Two days of rallying, but it’s likely to be mostly short covering.

We’re going to consider Wednesday’s accumulation day a potential low in the market.

We want to see a Follow Through Day of heaving buying come in some time after Monday as an indication that the buying is real, rather than shorts cashing in on profits.

The fact Thursday’s volume is less than Wednesday’s is a potential sign that buyers are less enthusiastic.

It's still a bear.

Chalk in another day of distribution, it’s still a bear!

It’s a Bear.

Heavy selling under the major moving averages on the major indexes is clear as a bell.

Everything but Energy is on the decline.

For Dow Theorists, a breakdown of the Transportation Index is a major Red Flag.

But it’s only the first week of the New Year.

January is often a voaltile month. And where January goes, the market tends to follow for the year.

Smart money has stayed out of the market for the intermediate-term. Both Bulls and Bears have been burned over the past couple months.

Our strategy plays off whatever the market tells us to do.

Shorting is a tricky maneuver. Though down is the likely direction for the short-term, we need to be aware that short covering rallies are fierce.

William O’Neil’s shorting strategies come into play after former market leaders have put in a few down legs and the indexes are unarguably trending lower.

We’re not seeing many of those setups right now.

And with the S&P 500 facing key support at around 1,400 we need to be careful.

As a traders we need to act like wild cats in the jungle. We should only jump for our prey when we’re certain we’ll get it.

There’s a full year ahead, and plenty of opportunities await.

Day for the Bears

It’s a clear day for the Bears for the first day of trading in 2008.

Heavy distribution under the 50-day average has our bias shifting back to bearish.