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Gary Kaltbaum is an investment advisor with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show "Investors Edge" on over 50 radio stations. Gary is also editor and publisher of "Gary Kaltbaum's Trendwatch"...a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary's Daily Market Alerts click here or call 888.484.8220 ext. 1.
The Nasdaq Composite followed through on the 16th day of a rally attempt, closing up 2.3 percent on greater volume then yesterday. This technically puts the market in a new confirmed uptrend...but with warts.
While all bull markets have begun with a follow-through day, not every follow-through day has led to a bull market. While historically 70-80 percent of them have worked, this one does not smell right. Successful follow-through days are usually accompanied by sound institutional quality stocks breaking out of constructive bases. Clearly, there is a lack of breakouts...but on that front, there is a clear lack of bases. My other problem is that while volume on the NASDAQ was higher than the day before, it was only about 1% better...and still below average. I have always thought a follow through day should have the feel of an explosive move. This was not explosive. I also make note that none of the other major indexes staged a follow-through day.
The market now has at least a chance to move higher here out of the bear market. If this is meaningful, more and more leadership will indeed show up. So you do not have to go out and just buy with abandon. I am cautious. If I do buying, I will probe and then add if things start to work. Just keep in mind that during the last bear, several of these follow-throughs crapped out. I will know this one fails by seeing distribution in the next several days. Normally a follow through will fail in the first three days by showing distribution.
FSLR led the day off its earnings gap. It did not look back...but a study of FSLR shows the correction was more than normal...but admittedly, FSLR had a large move so a larger than normal correction may have been necessary. There are several others I am watching...but the names are not plentiful.
I will take my time for good reason. This is a market that has screwed with everyone. If this is the end of the bear market, there will be plenty of time for stocks to set up and be bought out of sound bases. And if this is just another countertrend rally and false follow-through day, distribution will show up, and we will know shortly.
Lastly, a little quote out of O'Neil about failed follow through days:
"You should be alert to follow-through days that occur without fundamentally sound stocks staging strong breakouts from sound base formations. Often a questionable follow-through can be identified by a dearth of such breakouts which results in a noticeable lack of leadership. A sound follow-through day is generally accompanied by strong breakouts among a number of fundamentally sound stocks, so when this doesn’t happen, be alert to the possibility that the follow-through may likely fail."
Gary Kaltbaum
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