Key Reversal Day

We can’t be surprised to see the major indexes cut new lows before turning around and giving a strong rally on heavy buying. It’s called a Key Reversal Day, and when it happens at key levels, like the one the Dow tested three times now, it suggests a new pivot is in place.

But we can’t confirm any bottom until we see a Follow Through Day (FTD). Beginning four days from now we want to see at least one of the indexes give a strong rally on high volume. Waiting the four days gives shorts time to cover to let us get a glimpse of real buying.

Typically, we want to see at least one of the indexes rally close to 2%. But with volatility in today’s market at extremes we’d be encouraged to see at least a 4% gain on heavy buying volume…

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