Wednesday, July 30, 2008

Follow Through Day Hits The Indexes On Day 10; Remember, No Bull Market Has Ever Started Without A FTD. But Not All FTD Leads To A New Bull Market

July 29, 2008

This is one of those terms (FTD) that throw people for a loop when they here it. Most think that it means it is automatically time to go into the markets buying stocks. However, a FTD has to be accompanied by a few things to be a real FTD for me. First the selloff must lead into the FTD on low volume. We did not have low volume on the pullback this year. Second when I see a FTD the first thing I look for is the explosion in volume. How much volume was in on the FTD? Today, it was around a 16% to 18% increase in the indexes and while that is close to what I look for it was no where near the 20% increase in volume that I like to see.

For a perfect example of what I am talking about go back to 2003 and take a look at that FTD. The volume was huge and the price gains were enormous following a lower volume selloff. We do not have that this time and the fact that medical stocks are still the only stocks leading has me still not convinced we have a real follow through day here. Even if we do there will be plenty of time to jump on the bandwaggon and make a lot of money. Just study my 2003 and 2000 winners before the top. They showed up well past the initial follow-through day and still made me and a few investors very wealthy. It will happen again. Trust me. So if this is for real we will have plenty of time to get involved. And as you subscribers know I will be in the stocks that will be moving the most during the next bullish phase of this market.

The best news about all of this is watching oil come in. I am so happy for the rest of us that oil can continue to pullback and the fact that the charts look like they have definitely topped and that nothing is going to help them rise again. Many of us were able to profit on the bull market in oil stocks but it finally appears to be over. That is good news, not bad. Oil has fallen, I bliever, 25 points to $122.

If there is a chance we have seen a bottom it could in fact happen. We have had mutliple weeks of newsletter writers coming in with a bearish viewpoint than a bullish viewpoint. I believe it is seven weeks in a row according to IBD. That is a very long time for these usual perma-bulls to be bearish.

And this is so important that I am taking it straight out of IBD to show you exactly how bad it is. This is from today’s IBD’s Big Picture: Also, 15% of stocks in IBD’s database own Accumulation/Distribution Ratings of E, the worst possible grade. Typically you want to see that figure above 8% at the time of a follow-through, as it’s a sign of severe investor pessimism.

Remember one important tenet of follow-through days: Every bull market in Wall Street history started with a follow-through. But not every follow-through launches a new bull market.

This is just confirmation of my analysis that is trying to make sure that you do not do anything stupid and get too bullish too soon. Let the market continue to prove itself by offering up CANSLIM quality longs that are breakign out of perfect patterns. You will have at least a month of great stocks breaking out of great patterns before it becomes to late to get very long stocks in a safe moment where the market is not too far extended yet.

I still do not think we are there and think too many people are looking for a bottom for this to actually be a bottom. But I will change my mind if I could get a ton of stocks to setup and build those same chart patterns they did in 1999 and 2003. God were those great years. I hope we have one of those kind of years when this bear market is over.

I don’t have much to add to tonight to say that when I think a stock may have bottomed I want it to look like MER. Take a look at that bullish intraday reversal candlestick pattern, look at the HUGE VOLUME surge, and look at BOP go max green with TSV18 taking off also. This is what I like to see in a stock that I think is bottoming. Now, with me saying that, if MER does not rally and continue to rally on green BOP and strong volume and instead drops below the lows. That, my friends, will be very bearish.

So on that note, do NOT get too excited. Wait for the good charts to come to you. They are still not out there. I will leave you tonight with the final part of the IBD Big Picture which I think is important that everyone should read it even if you don’t have a subscription. If you do not have a sub to IBD….why not?????

FROM IBD: Financial stocks were among Tuesday’s top performers, following the announcement late Monday of Merrill Lynch’s (MER) latest write-down. The plans appeared to give the market some hope that the firm is working through its credit mess.

Bank of America, (BAC) Wachovia Bank (WB) and other financials banked hefty gains.

Better-than-expected earnings reports also stoked the market’s rally.

Amgen (AMGN) gained 1.80 to 62.28 in triple its normal trade. Late Monday, the biotech firm beat views and raised guidance. It boosted its full-year profit outlook to a range of $4.25 to $4.45 a share vs. estimates of $4.19 a share. Revenue is expected at $14.6 billion to $14.9 billion, or above views of $14.42 billion.

Amedisys (AMED) climbed 4.62 to 65.53 in heavy volume. The provider of home-nursing services grew Q2 earnings 44% to 82 cents a share, or 13 cents above views. Sales gained 85% to $312.7 million, easily beating forecasts of $288.3 million.

Concur Technologies (CNQR) gapped up and rose 5.15, or 14%, to a nine-year high of 41.20 in huge turnover, although it closed well off its intraday high.

American Express (AXP) said it bought a 13% stake in the software maker for $251 million.

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