Now for the last part of the instalment.. the follow thro' day.
A bit of definition - A follow-through is a gain of 1.7% or more by at least one of the major indexes on higher volume than the previous day, occurring on Day 4 onwards of the rally attempt.
The last follow thro' day was on March 20 by the DOW. One needs to track NYSE, DOW, S&P and the Nasdaq for signs of follow thro' after the index stops falling and attempts to rally. A close higher than the previous day counts as Day 1 of attempt rally.
Anytime during the rally attempt, if it undercuts the recent low, the rally count resets back to zero again.
Prospective rally is intact as long as DAY 2/3 DOES not undercut Day 1's low. The most explosive rally occurs when the follow thro' day occurs in Day 4-10... why??? Even if Day 1/2/3 has positive gains, it could easily be short covering... It takes ALOT of money to move the index by a large amount beyond Day 4.
Here is the chart for the DOW. As you can see, the DOW followed thro' on Day 8 of attempt rally. The strongest rally I have seen all come from Day 4-10 of the rally attempt.
This follow thro' day is tested over more than 100 years of historical data. Please bear in mind that NOT ALL FOLLOW THRO' DAY results in a major uptrend BUT NO RALLY IN HISTORY HAS EVER STARTED WITHOUT A POWERFUL FOLLOW THRO' DAY.
This is accurate about 70% of the time... For me.. it is much better than blindly trading. Having the indices on an uptrend is like tail wind for your stock performance cos' most growth stocks will follow the market higher.
Y didn't the Nasdaq lead the follow thro' this time.. The Nasdaq undercut its recent low during the attempt while the DOW did not. So the base count was reset to zero again for the Nasdaq. The Nasdaq flashed a follow thro' on April 1.. together with the S&P 500.
After one of the index flashes a follow thro', you would also want the other market indices to flash their respective follow thro' day not too far away after the initial follow thro'. This signifies strength in the overall market and that the BIG funds are back in the market, busily buying up shares.
Right after follow thro' day, watch the market index for signs of weakness... namely major distribution day within 3 trading days thereafter... Historically, if that happens, this rally will be killed very very quickly.
I hope this helps.