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That is the million dollar question. For those that missed it, on Friday we did get a “marginal” market uptrend confirmation in the form of a Follow-Through Day. It was “marginal” in the sense that the price action on the Nasdaq was only up 1.3%. Volume was strong, but having it occur on an options expiration Friday makes it a little unclear whether or not that represents true bullish demand coming back into the market. Some leading stocks seem to be validating this new uptrend as they move up out of decent looking consolidation areas. However, many other leaders are moving off lows below their 50 dma’s and still have a ways to go before completing chart patterns.
We would love for the Follow-Through Day to have been more obvious, but the fact of the matter is that the stock market is never black or white. As investors, we are constantly looking for signals that the odds are shifting to our favor, but we are never 100% certain. At this point, the rules say it is probably safe to begin buying stock. And there are a handful of leading stocks with decent looking setups to choose from. Remember, it is not the time to get carried away and plow in with the entire portfolio. Refer back to my blog on moving incrementally. I still have the same attitude towards this market. The environment still seems very news-driven and fragile. So it needs to prove to me that it is real if it wants me to be heavily invested.
At the same time, it is important not to lean too far the other way, and remain bearish in the face of bullish signals. You don’t have to begin buying right away, but if you wait too long to get going until a new uptrend becomes very obvious, you will be chasing the market for the rest of the cycle. Psychologically that is a tough position to be in. So it is very important to get started correctly. It makes everything else easier down the line. That’s why right now I’m focused on proper stock selection, accurately timing my buys, and most importantly, maintaining portfolio discipline.
President, MarketSmith Incorporated
Follow Scott O'Neil at Twitter.com/WScottOneil
Scott: Wouldn't it be more correct the FTD occurred on 6/6 versus 6/15? If so, then 6/15 is more confirmation of that FTD than a true FTD, correct? 6/15 only had 1.3% versus the 1.4% requirement, correct?
Only reason I ask is if we assume it was 6/6, then we already have 2 distribution days since that FTD
Just my 2 cents, but 6/6 looks like it occured on day 2, which technically doesn't meet the 3 to 7 day criteria. With that said Fridays follow through being options expiry and occuring on day 9 is suspect. As Scott said though, you can't ignore some of the bullish signs, select stocks breaking out.
It would make sense if this Uptrend worked due to the fact the majority of the people think it won't. The news is all negative it's perfect.
@brianm: 6/6 was too soon for a Follow Through Day. We start looking for one on or after day 4, of the rally. Refer to the blog from that day for an explanation for why we wait: community.marketsmith.com/.../11333.aspx
Today we are on track to have another FTD. Solid confirmation on top of confirmation, always a good sign. When a new uptrend starts, we look for signs of strength to justify incremental purchases. Today the Nasdaq up 1.5% pushing through the 50 dma, w/ above average volume (and yesterday’s volume). Today also brought more breakouts among stock leadership. I am reacting to each of these signs accordingly by wading in deeper in the portfolio today.
What % of the portfolio would you say is acceptable to be invested at this point in the game? Or is the answer too complicated?
Appreciate your updates Scott. During afternoon the market was on track to give another strong day but the close was a bit shy. The action in leaders was still ok and overall it is a positive action but it could have been better.
How much consideration do you give to the not so strong close today?
Scott, thanks for your update. How did tomorrow's Fed news impact your investing strategy today?
Your blogs are always much appreciated Scott. Thanks for your guidance.
Mia - for myself, I use this piece of advice to help me decide how much I should be invested, "...if you aren't making progress at 10% invested, why go to to 20%? If there is no progress at 20% why go to 30%..."
@miamorekarina: Your % invested depends on your risk tolerance, how much you are up for the year, how much you are up since the FTD, and a number of other factors. It’s all about the progress you are making. If you have nice gains and a good cushion you might be very aggressive and be 50% invested. I, however, am not there yet.
@I: Good answer
@SM000: Not much. But I was watching closely and I will react to what I am seeing in the price and volume action.
I am trying to follow the MarketSchool exposure rules and am finding it surprising how much quicker I am getting in. I was abviously quite cautious - not a bad thing for a less experienced trader. I accept that with a more aggressive approach the drawdowns will be bigger, but so will be the returns. I find MarketSchool invaluable.
Are these warning signs when stocks continue to blow up BBBY, and LQDT.. Breakouts faltering CERN, SXCI & UA.. Liquid Leaders still basing ISRG,AAPL,PCLN and CMG. I don't think 1 semi can lift the markets all alone MLNX.
i think that even though there are some select leaders breaking out and others sitting in attractive bases i am concerned about a lot of leaders failing after they breakout as well as forming faulty bases.Today's action isn't at all inspiring.Quite a few leaders are taking some nasty hits today.MLNX,UA,LQDT,SXCI,CERN all taking big hits today
it'll be interesting see where volume ends up for the day. looks like it will be well below avg, and has been sliding throughout the day. If it's not more than yesterday it will ease the sting a bit.
Was today the nail in the coffin?
If you aren't making progress today (and I suspect most aren't) you should not be going in deeper. In fact, if you are seeing sell signals on the stock you purchased, you should be wading out incrementally - the same way you got in. If you move in and out in this fashion, without plunging in or out, it is impossible to get hurt. Right now, I'm starting to sell the positions that I am down the most on, in order to get my % invested down.
Scott Thank you for the blog and the great follow up to questions. It is much appreciated and helps us all when we have a rally as tepid and questionable as this one. I will be sharing your wisdom and the great thoughts of others with our IBD group. Yesterday (6/21) was going to be my initial wade-in; obviously not. Still watching price-volume action. Brad
Is it possible that June 15th wasn't a FTD and today was the FTD that we have been waiting for?
FTDs in June and July have historically been failures (per IBD Radio show recently) back to early 2000's ... from what I am learning is that you look at it objectively, and SLOWLY as well as CAUTIOUSLY move in (incrementally) ... I would think BECAUSE the market has been skittish & weak, that only the very best of CANSLIM selected stocks would have a better than average chance of showing some profits - - but the context of this market and this season/time of year demands one to play it "tight" versus more robust, confirmed and established uptrends. Most FTDs (as per William ONeil's book) are going to fail... so June 15th is history and substantiates that knowledge of most FTDS since early 2000s.
@ScottOneil, Why do you think the IBD change their outlook to market in correction on monday when the latest rally has on one distribution and the market has not cut the last low? Actually it looked like it was holding fine with volume cooperating too. Don't you noticed that the Big Picture calls the market outlook late or too early which makes it confusing for the investors to follow. They may need help there.
It changed to Market in Correction due to a failure of the 6/15 FTD. For the NASDAQ, the 6/25 close at 2836 and below the low of the 6/15 FTD of 2838 resulting in a failed FTD and the market in correction condition is reset. Now we have a new FTD on 6/29. Any close below 2895 would cause this FTD to fail. The expectation is that a FTD is supposed to carry the market higher and not to churn or close lower.
To all: Can we legitimately calll 6/26 a new rally day with the strong NSDQ/S&P500/ DJIA price & NSDQ/NYSE volume action on 6/29 a FTD which would then place it on the fourth day after the rally? 6/26 did not undercut the low of 6/4 but "a few weeks" had passed and, according to WON in HTMMIS, p. 220, 4th ed., the rally could be resuming. Or, am I really just making a semantic argument and the market and exchange price-volume action on 6/29 represents a stronger and more accurate (no options expiry volume questions as on 6/15) FTD and therefore confirmation of continued upside strength in the rally beginning on 6/4? Thnx in advance for any thoughts and comments. Brad
I agree more with bjrad. The rally that started on 6/4 is still intact with 6/29 acting more a legitimate confirmation. I think IBD called it wrong and changed their rules as they see fit to cover their wrong judgement sometimes. If they will just stick with William Oneils rule they'll be fine. I have never heard from Mr. Oneil that if FTD is undercut then rally has failed. He wrote that if the last low of current rally is undercut then rally has failed.
@sy.bong: You are correct that the rule written in the book is that the rally is over when the low on Rally day #1 is undercut. However, you must react to weakness you are seeing and the sell rules on individual stocks. If you wait until the low on rally day #1 to begin selling, you are not reacting quick enough.
I think IBD did a fine job calling it. Rally’s that get hit with distribution this soon out of the gate almost never work. But now that we have more convincing accumulation in the charts we are back in a confirmed uptrend.
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