Market Stages Follow Through: Rally Technically Under Way

What does that mean? It’s the Investor’s Business Daily (IBD) proprietary indicator that the market is technically in an uptrend now. My instincts were that the market has shown some positive action, but has also shown some negative action, equaling a cautious view.


That’s what the IBD states in their Big Picture column on their website tonight. They note, however, that high quality stocks have broken out in the past few days on good volume, ahead of the break out. I had noticed this as well (Priceline was indicated here, which went on to form a high handle that it broke out of Monday), and I know it is not unusual for some stocks to break out ahead of or right on the day of confirmation that the market is in a rally mode.

Other prognosticators and market pundits have their own models to determining when the market is generally predisposed to go higher or lower, but I find IBD’s is quite accurate and provides a good timing mechanism for buying break-out stocks.

One interesting note, all three major US indexes have formed a cup with handle pattern. The NASDAQ moved above it’s handle’s high on volume today, while the S&P 500 moved above in lower volume and the DJIA didn’t move above its. The indexes do not act the same way as individual stocks and it is not important that they exhibit the same chart patterns we look for in a stock, but it helps explain why we are seeing so many cup with handles in individual stocks. Many stocks follow the market’s direction and their charts often reflect the overall market.

I’d have to look this up, but I recall once the IBD showed the stock market indexes forming a cup with handle break out which kicked off a previous market years ago. Just something to think about.

At any rate, I often give a market rally time to prove itself unless I am really excited by the follow-through day and previous market action. I may wait a few days or a week or so. A couple times in the past, I’ve jumped right in. Right now I’m on the fence and would like to see some more positive action. However, if I see a stock that shows really nice movement, I may dip my toe in right away.