Be wary of distribution days in a young rally
The June 2010 rally attempt began June 8, at Point A (see below), as the market indexes undercut the prior low price, but closed higher. At Point B, June 15, the market gave a Follow Through Day on the 6th day of a rally attempt, which historically bodes well. (A Follow Through Day is thought of as a confirmation that the correction has ended and a new rally has begun. The Investor’s Business Daily reports that a Follow Through Day on Day 4-7 of the rally attempt is usually a strong signal.)
At Point C, June 21, the market made a strong advance during the day, but retreated and closed lower. That reversal was quickly followed in three of the four next trading sessions by distribution days of lower closes on volume that is higher than the prior day. Therefore yesterday’s 268 pt drubbing of the DJIA (and 3% loss in the Nasdaq) cannot be too surprising.
We are in a correction. The plan from this point is to wait for the next eventual and inevitable Follow Through Day signal.
Be wary of quick distribution days after a rally begins
