Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Identifying the start of a stock rally

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Our good friends at the “Investor’s Business Daily” newspaper print their outlook on the stock market right on the front page each day .  (I think it’s the most expense daily newspaper in America, and worth every penny. Get a free two week trial subscription here. And, no, they haven’t paid me to say this.  I just want smart readers.)

On to business…

IBD’s research of all the stocks market rallies over the past century, show that they all start the same way: with a “follow through day” of a stock index leaping up at least 1.8%.

Rally's "Follow Through Day" in July '09

The rally Follow Through Day must occur on Day 4 or later from the bottom of the correction.   You can see at the end of June in the chart above, there was a big day of gains, BUT that didn’t come on Day 4 or after.

It’s important to know that “Follow Through Days” are not blind green lights to buy anything and everything.  Wait to buy stocks at good breakout points from sound chart patterns on heavier volume.  Don’t fall in love with a stock because “it’s cheap.”  Cheap stocks can get cheaper.

Since we’re still in a correction at this point, use this “down time” to research, research, research stocks.   Today, Feb 10, we’re on Day 3 of the rally attempt (after the lows in this move put in on the big reversal day Feb. 5) keep your watch lists ready for the Follow Through Day which could come as soon as tomorrow -Day 4.)

Written by heyercapital

February 10, 2010 at 11:52 am

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