Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
There is some debate whether 1.3% or 1.7% is the bar to pass for an IBD follow through day but it appears 1.3% is good enough. I believe that was the old threshold before they changed it to a higher bar in recent years due to the increase in market volatility we’ve seen over the years. Either way this type of move should happen in the 4th through 10th day of a rally attempt and today was day 10. The preference is days 4 through 7, but beggers can’t be choosers.
Some other stats of interest:
- Since 2000 only three other follow through days came with smaller percentage gains. Two in 2005 failed, the one in 2006 succeeded.
- Also every FTD in June or July since 2000 has failed or provided inconclusive results.
- The volume due to option expiration is also causing some issue since it’s “artificial”.
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To repeat a FTD does not mean a new bull run is afoot, but according to the folks at IBD there has never been a sustained move without one. (I’ve never seen a study to confirm or deny this) FTDs have a roughly 30% fail rate; we saw one at the end of April/early May fail quickly. But this is a widely followed group so even if you (or I) don’t necessariy agree with it, it is important to note because many others do. Very much like technical analysis. One positive was a group of stocks that had held in relativey well during this multi month correction did break out today – which was a missing piece the past 2 weeks. Now they need to hold onto those breakouts and not fail in the next few sessions.
And to really repeat, everything right now is headline driven and based on apparent market belief of constant intervention by authorities.
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
