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Heavy majority of leaders are certainly not giving me the wink and nod and tempting me to try my luck early.
Most new highs have seen buyers beaten down with the sellers hammer and retreat back into their bases.
8 days in and only a half hearted 5.7% charge from low to high.
This link Zooms into the index on an hourly chart. It only shows more confusion with overlapping prices and overhead supply sitting right above us.
This isn't exactly looking like a fat pitch set up (excluding a major news driven event). One has to wonder if we simply need more time or a lower low?
Another thing to keep in mind is if there's no FTD within the 7 days of a rally attempt in most cases it fails or a rally up will be extremely weak to keep it simple.I surely will not test my luck on any breakouts right now.
how do you quantify "in most cases"?
IIRC what O'Neil actually says about this is that the most powerful follow throughs occur between Days 4-7.
A follow-through day that appears after the seventh day of a rally is a weaker signal.I personally havent done a tremendous amount of research on it but I have seen about 2 or 3 examples i will try and post them up as soon as i can for reference but i was referring to HTMMIS and O'Neils framework on how a FTD works and what he considers strength and weakness in a rally attempt.Anyone have any good historical data on follow through days after the preferred 7 days?
07/29/08 looks like an 11th day FTD. Don't take my word on it and double check.
yea seems that way.thanks for that one.I think that is a pretty good example of why he said a FTD after 7 days of a rally attempt is weaker.It really only took a month for that rally to break down.i will be doing some hw and try and come up with a few examples myself.i tried to look for some data on it through ibd and older ms posts but couldent come up with anything.
Could today be the green light?
Since August 2007 we had 26 FTD's, with 8 of them occurring late in the uptrend. In analyzing them I labeled them up trends A to Z. The 8 late FTDs are described at the end.
Today (Friday June 15) FTD is Day 10 for the four major indexes - using June 4th as Day 1 of the uptrend. Today’s FTD has several signs that make this a weak FTD, they are:
1. The FTD occurred late in the uptrend; day 11.
2. The NASDAQs 1.3% price move was marginal. Look at the Dec 20, 2011 (Z) uptrend with its 3% price move on its FTD. Two other uptrends (F) and (X), experienced a big price move, but lacked the synergy with the other indexes that the Dec 20 uptrend had.
3. You did not have synergy with the other indexes. You would like to see all of the major indexes experience a FTD. Again look at Uptrend (Z).
4. Today’s volume is qualified due to option expirations.
5. 6/11 and 6/13 could both be considered distribution days. Normally you like to see the indexes move from start of uptrend to FTD, straight up without any distribution days.
6. The lack of a significant number of leading stocks posting breakouts from sound bases.
7. The top 2 sectors are Food/Beverage and utilities, both defensive in nature.
The following is what it would take to make this uptrend work:
1. The other indexes staging a FTD. Subsequent FTDs without additional distribution days.
2. More leading stocks breaking out from sound bases.
3. A rotation of the leading sectors from defensive to growth.
In general FTD’s that occur late usually fail. But examples of ones that work are around, so don’t be convinced to stay out of the market. Ones that worked started out slow and were confirmed with subsequent FTDs. My advice to the IBD meetup I run is to start out with smaller position sizes. As we get confirmation of the uptrend with additional FTD’s, increase your exposure. In addition, let the market pull you in – by buying leading stocks as they break out and adding to your position as they prove themselves. I will watch my gains closely, not giving up all my gains in a failed uptrend. However, I will balance my selling with some patience – a very fine line between the two. FTDs that follow a great uptrend like what we had from December 2011 are more volatile, also we are past the 3 year anniversary of this bull market, also a sign of more volatility ahead. So expect to be whipsawed around with the news – the best protection is not to buy extended and avoid faulty late stage bases and keep a portion of your portfolio in cash until it proves itself.
The following are the 8 late FTDs and my notes:
August 29, 2007 (A), FTD on Day 10, this was the last significant uptrend before the 2008 bear market it lasted 47 days and was very profitable. However, on Day 5 of this rally (8/22/07) the NYSE Composite was up 1.5% on volume higher than the previous day. IBD has used a value as low as 1.4% for a FTD, but not this time, don’t know why. This uptrend had numerous follow-on FTD’s on Day 12, 18 and 23, to confirm the uptrend.
February 13, 2008 (C), FTD on DAY 16; on Day 16 the NASDAQ was up 2.3% on volume that was marginally above the prior day (0.2% higher volume). The FTD marked the high for this uptrend. This was the first failed FTD in a long stream of them in the 2008 bear market.
March 20, 2008 (D), FTD on Day 4 for the DOW, but only on day 3 for the other indexes; the S&P NASDAQ and NYS confirmed the uptrend with a FTD on day 11 - hence the reason I listed it here. I did not consider the Day 4 market actions a FTD, while IBD did. This was a tradable rally in energy stocks, due to oil hitting $140, but not very profitable elsewhere – at least for me.
July 29, 2008 (F), FTD on Day 11; this FTD lasted about a month. It had a good start with significant price and volume. It ended with a big drop that started the steepest decline in the 2008 bear market. It also started at a time when the Investment Advisor Sentiment gave a significant bullish signal. Something we don't have today.
March 1, 2010 (O), FTD on Day 16. A weak FTD. Price and volume action was barely passable. It experienced 2 distribution days between the start of the uptrend and the FTD. It did not experience a subsequent FTD to confirm the uptrend. It was the 4th FTD since the start of the bull market that began in March 2009. It was a tradable rally, but you needed to take profits as it started a long correction that would end in September.
July 11, 2011 (W), FTD on Day 12, price and volume action was barely passable. This rally went nowhere and it ended with the summer correction in 2011. It experienced a distribution day between the start of the uptrend and the FTD. While the volume was higher than the previous day it was significantly below its 50-day MA.
August 23, 2011 (X), FTD on Day 11. Rally didn’t go anywhere. It experienced a distribution day between the start of the uptrend and the FTD. While the volume was higher than the previous day it was below its 50-day MA.
December 20, 2011 (Z), FTD on Day 16. Significant rally, didn’t want to miss this one. Different from the other 7, all 4 indexes made a FTD with a price move between 2.9% and 3.2% and volume was near its 50-day MA. It did experienced a distribution day between the start of the uptrend and the FTD, but the uptrend was confirmed with a number of subsequent FTDs.
Meetup Organizer of the IBD Meetup in The Villages.
Talk about doing your home work. Nice work.! The July 11/2011 I can't figure that one out. Could the dates be wrong?
For the IBD Meetup I run, I analyzed all 26 uptrends over a 5-year period. So I had the notes and research handle.
Yes. The date was wrong on uptrend W. The uptrend started on 6/16/11 and had a FTD on 7/1/11. I guess with all those ones and doing it late at night I typed an extra digit and didn't catch it. I wish the site would let you edit blog posting they way you can with forum postings.
For those of you who are new to CAN SLIM and want to read more about some of the topics I mentioned in this posting, check out the following IBD Resources:
This article discusses Red Flags in FTDs, dissecting the June 29, 2006 FTD, This uptrend occured on Day 12. education.investors.com/.../watch-for-red-flags-in-new-uptrends.htm
This article discusses how to use the market page to do a health check of an uptrend. Of Particalur importance is the part on using Sub Group Rankings to gauge the market and the use of Psychological Indicators.
Also important to note is that the FTD occured on an Options Expiration day. IBD has commented on making distribution Days qualified if that happens, but has not discussed it occuring on a FTD. Only 3 of the 26 FTDs in the past 5 years occured on a Friday and none on an options expiration date.
I will be dipping my toes in the water next week. I will also be watching the markets closely for signs of additional strengths and weaknesses.
Robert - Nice write up.
Thanks. If you like my write up and have not yet rated this posting, please do so. I like the positive feedback. :-)
I don't typically rate my own posts, but sure why not.
Paluszak - going deep. Nice job. I will be revisiting this post quite a bit.
That was insightful.Thank You!
Now for my commentary and rank on this market. It concerns me that we are 3 yrs from the start of this bull market, without a major bear market. I don't beleive in the elliot-wave theory, but we have had three waves up, each with lower momentum and increased volatility. I would just wish the market would give us a good bear market, wipe the slate clean - allowing us to start with a fresh group of stocks and a new bull market. Of course, we can't wish nothing on the market - it will do what it wants. The one thing this correction did not have is a panic sell off. Look at the: VIX, some of the internals such as the NH/NL, Breadth and TRIN; and the IBD Psychological Indicators.We didn't see a spike up during the down days like we had in the Summer 2010 and Summer 2011 corrections. This market is bahaving like a pause for profit taking and shows the indecision with all the bad news out there. Even the FTD was indecisive in my mind - I like to see decisive action on FTDs.
Look at the Daily chart for the S&P 500 for August 20, 1982. Look at the power at that FTD, that is what a FTD should look like. Then zoom out to a monthly chart and you will see that the market was basically unchanged since November 1968. That FTD in August 1982 was the end of a 14 year secular period of consolidation. Now change the date forward 10 yrs to 1992 and you can see that August 1982 was the start of a secular bull market that lasted until 2000. You would not have wanted to miss that breakout. Someday this 10 yr sideways market will end and the days of easy money will be back :-) It could be today or next year, who knows.
p.s. "I", Sorry I lost sight of the fact it was your post that started it. I concur, I don't rate my own posts.
I asked a friend about the options expiration day and he told me that Bill had said that making excuses for market behaviors is a fools game and will only get you into trouble by thinking you know what the market is trying to tell you. The key is simply price and volume.
Paul, not to be a pain in the you know what but I think you might of made a mistake with the FTD on 7/1/11 I think the FTD was on day 4 on 06/21/2011. Forgetta bout it, I still give you 5 stars!
We retook the 21 day on the Nasdaq which is positive and that might be something worth while to follow to see if we can hold it.
I will stand by my FTD on 7/1/11. It is clear that on 6/15 all 4 indexes made a new low.
In order for the NASDAQ to have had a FTD on Day 4 (6/21), you would need to have called 6/15 a bullish reversal and day 1. While a bullish reversal does not need to close above the prior days close, it does need to close above the prior days low, which it did not.
The second highest mover was the NYSE, which was up 1.5%. You could make the argument that it was Day 4 with a bullish reversal on 6/15, but it would be a weak argument.
The S&P was only up 1.3%, not enough for a FTD. However, this is the only index that is without question in day 4 of the uptrend.
The DJIA was up 0.9%, clearly not enough.
Overall 6/21 was not a clear and obvious FTD. 7/1/11 provides a much more obvious day. The following link is the big picture for 6/21, they did not see it as a FTD; news.investors.com/.../stocks-leap-but-doubts-remain-about-market.htm
To quote William O'Neil in HTMMIS, 4th Edition, Pg 220: “A follow through day should give the feeling of an explosive rally that is strong, decisive and conclusive – not begrudging and on the fence or barely up 1.5%.” I market action on 6/21 did not give me that FTD feeling that O'Neil describes.
In defense of your claim to a 6/21 FTD, in the Big Picture on 7/1/11 IBD did write "It is possible that the 1.3% gain in the S&P 500 on June 21 was a follow-through". But, IBD wrote this in hindsight and only acknowledged that it was possible not that it was.
Since 2000, IBD identified 3 FTD's that experienced a percentage gain of 1.3% or less. Two failed within a week, and the third saw a choppy 6% gain in the index over about 12 weeks. If this was a FTD, it would just be added to the list of weak price move FTDs with a 6% gain over 4 weeks; not example a sucess, plus the choppy market, may make it tough to not get stopped out early. So the question is, why would you want to call 6/21 a FTD, when there have been only a few examples of such a weak FTD and none of them could be called a success.
The actions of the market however, tell the story. The uptrend that started on 6/15 (Uptrend W) was choppy and peaked on July 7th, before reversing. Not a winnder in my book.
Without or without this uptrend (W), my argument that there is a lack of precedence for late FTDs being a success still holds. The 6/21 FTD, would make the argument for FTDs with weak price movements not being that great. But that would be a seperate post.
In the end, I will wade in with a small portion of my portfolio, and will watch for additional confirmations as noted above. But, being aware of the precedence.
I never read that a pink rally day has to close above the prior days low In order to count. Do you have that in writing? I am not trying to be smart but I always thought that as long as the close is mid range or higher on the day that was all that was needed. A good example would be 10/08/98 on the Nasdaq which did not close above the prior days low. Going back to 6/21, with LULU and ULTA two liquid leaders hitting new highs on that date I think that was conformation that the 2.2% FTD on 6/21 was valid.
I am assuming that the pink rally is the same as a Bullish Reversal. I have seen the term used in IBD's literature for its new Market Class, but I have not seen any descriptions of it. I searched Investors.com and found no articles that used ther phrase Pink Rally. Are there any criterias that IBD has or does not have that differentiate a pink rally from a bullish reversal?
No I can't find a citation to my definition, It has just been one that I have used for a long time and does work. I wish I could recall where I got it from. As I have not seen a definition by IBD I used the one I am familiar with and trust. It does vary from IBDs practices in that the formula uses the size of the body, which takes into account the open price, something that IBD does not do. I also look for the close to be in the upper third, the NASDAQ close on June 16 was 56% from the bottom of the days trading range. It also had a large body, and a low ratio of lower wick to upper wick - which doesn't mean anything for an IBD purist.
The NASDAQ price action and leaders breaking out on June 21 only matter if you are on Day 4 or latter of an uptrend, which is dependant upon June 16 being a bullish reversal. We will have to disagree on that. While you make a good argument, I will have to side with how IBD describes this uptrend - see the link above to the Big Picture for 6/21. The only possible alternative FTD day that IBD sees in this uptrend is with the S&P for June 21. They make no references to the bullish reversal you are basing your FTD on, or in any of the big pictures for that entire uptrend. I did search the IBD archives, and found several references to bullish reversals in regards to FTD, so it is not as though IBD does not consider them. I wonder why IBD did not call this one your way.
While the 1998 FTD illustrated your point of the pink rally. It also goes to show how weak the June 21 FTD was. The 1998 FTD had synergy with the other indexes, while the recent one did not. The 1998 FTD came after 3 days of higher lows and the one down day was on much lower volume; while the 6/21 FTD came after three days of mixed action with the second day a distribution day with volume higher than on 6/21, with day 3 of the 6/16 uptrend undercutting the low on day 2. What was also significant is that the 1998 FTD you refered to, experienced a subsequent FTD without a distrubution day between it. It would be great if the market gave us a subsequent FTD on Monday.
Whether this uptrend (W) experienced a FTD on 6/21 or 7/1. It was still a weak uptrend that was choppy, didn't last long and in general was a tough rally to trade with.
Mia... Thanks for the exchange of comments and feedback. I did add to my notes to further research the definition of a bullish reversal. Also for Uptrend (W), I made a note that besides the FTD I described above that there is an alternate FTD, based on a looser definition of a bullish reversal than I have been using and which is not supported by IBD's Big Picture column. It looks like you have studied these FTDs before. Do you have a good source for historical price and volume data for the indexes? If so, email me at email@example.com.
Great discussion! But I too don't follow how 7/1-2011 could be an FTD .. isn't the volume lower than the previous day?
In regards to the volume on 7/1, you are correct. For the 7/1/11 FTD the big picture stated “Something an investor should never do is argue with the market. The major indexes are now 6% to 8% off recent lows. Aside from pride, there's no point in clinging to an inaccurate label.” While it didn't have the volume, IBD had made an exception to that requirement due to the price movement of tha major indexes. It goes along with the saying "Price trumps Volume". I went into depth about this in an older post on IBDs capitulation, they had done so on two other occasions. You can find that post here: community.marketsmith.com/.../10222.aspx . If you have questions on comments on this, please post in the other forum message.
I don't agree with IBDs decision, but at least I feel I understand how they got there, and I don't want to try and defend IBDs actions. You will need to get an explanation from them. I did ask, and didn't not get any better answer.
However, for this discussion on late FTDs, you can drop that FTD and the argument still holds. A late FTD carries risk. But additional FTDs is the key to a solid uptrend.
All this discussion makes it sound like there is some absolute "truth" out there. We do want to pay attention to detail and learn from the past but in the end everything is contextual and nothing is absolute. This is why trend followers are often wrong but cut their losses quickly.
Ebaasch - very well said.
Regarding the June 2011 market turn, I regard 6/23 as the follow through day. I combine the following factors of strength to reach this interpretation.
1. 6/23/2011 was day five since the 6/16 low of the Nasdaq Composite.
2. Very heavy volume occurred on 6/17 "Without further price progress down" see page 108 HTTMMIS Green
3. The trade on 6/21; 6/22; 6/23 ocurred higher in price than 6/17 the heaviest volume since the low.
4. Accumulation occured on 6/21
5. 6/23 closeed 2.3% off its low
6. 6/24 was designed to look like terrifying, massive distribution, but really it is Towering Volume "without further price progress down". I mean is it really distribution if it holds in the upper half of the bounce off the lows, higher in price than the previous very heavy volume of the bounce?
Real distribution showed up on 7/11/11; 7/12; 7/14. Each distribution day occurring significantly lower in price than the previous day. 7/27 confirmed by selling off hard and testing the two week lows; 7/29 made a new two week low.
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