Abiding the follow-through-day
We are in a correction. Hopefully you lightened the load with my April 27 post about Greece and knowing where the exits are. (Be sure to subscribe to my RSS feed with your browser to stay on point with my outlooks.) But what about deciding when getting back in?
Recognize how the market puts in a bottom. As the correction unfolds, the indexes will make new low after new low interspersed with intraday or daily gains. (The market never moves in a straight line in either direction.) On a chart, where it’s easier for me notice such things, a major index will undercut the prior low price of the leg down. Yesterday, May 25, that occurred when the S&P 500 moved below the low of the May 6 “Flash Crash.” (See Point A.)
- An undercut resets the waiting period for a follow through day
Yesterday is “Day 1″ of the rally attempt. It seems overly simplistic to say that “just not going lower” means a rally attempt is underway, but that’s exactly it.
Now we wait for the Follow Through Day to come on Day 4 or later of the rally attempt. The 25th + 4 days gives us Friday as the soonest we can trust a Follow Through Day.
FAILURE?
If the market indexes breech the lows of the 25th, then that particular rally attempt is kaput. Each new low begins the rally count again until either the low is taken out again, or we receive a Follow Through Day. Be sure to click on the tag of this post to see my other explanations of the Follow Through Days.
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