10/07/2022   DOWNTREND.  The Attempted Rally holds – but Friday’s drops almost undercuts recent low

October 9, 2022

10/07/2022   DOWNTREND.  The Attempted Rally holds – but Friday’s drops almost undercut recent low (start of Attempted Rally)

Day 5 of the ATTEMPTED RALLY

A Downtrend can be turned into an Uptrend by having a Follow-through day – a “big day” on the 4th day of an Attempted Rally (Uptrend) or later. (Occasionally, the third day in the attemptedrally can be a follow-through day.) Look for:

·      A strong price rise of 1.5% or more

·      With higher volume than the day before,

·       On day 4 of the Attempted Rally or later.

What makes a F-T day stronger?

·      The sooner the Uptrend F-T price/volume happens, the stronger is the signal, e.g. a day 4 F-T day is stronger than a day 5 or 6 of a new attempted rally.

o  F-T days occurring on Day 8 of a new rising market (or later) have a lower success rate.

·      The larger the price orvolume rises, the stronger the signal. If both price and volume are well above the minimums listed above, the F-T signalis stronger!

·      If both the Nasdaq and S&P500 have F-T days on the same day, the signal is stronger than just one index.

NOTE: The volume does not have to be above-average, but above average volumeis stronger.

Note: A Downtrend becomes an Uptrend with a Follow-through (FT) day. But we did not have a FT day since the recent low -- neither the Nasdaq nor the S&P500 had a day that rose signficantly with higher volume. Friday was the fifth day of an attempted rally. The FT day can occur on day 4 or later of an "attempted rally" by either the Nasdaq or the S&P500 as long as the index has not undercut its recent low.

>>>> NO UPTREND (YET) But NOT TO WORRY!  Not all Uptrends begin on the first possible day.

Monday could be the Follow-through day. The earlier a F-T day occurs, the stronger its market moves tend to be.

HOW TO GET READY FOR THE FOLLOW-THOUGH DAY.

Your job is to build a watch list of strong stocks to consider buying when the FT day occurs.

When William O’Neil identified a new Uptrend as starting,….. he would walk down the hall, stick i=his head in the office of each of his personal portfolio managers and ask one questions, “What did you buy today.”  They had to buy something if it was a new UPTREND.

He knew identifying the F-T day was the first task. But then deciding what stocks to buy on that first afternoon was a sign of commitment to the new Uptrend.

>>>>> Your assignment is to build a watch list of great stocks with strong ratings, near breaking out from well-formed bases….so you have a place to look for your first purchases. Only buy stocks that meet your CANSLIM criteria AND are breaking out on that F-T day or within a3 or 4 days after it. You don’t have to buy full positions (you can). William O’Neil required every money manager to buy something on that first day.  He knew, "the market looks completely different when you actually own some of it."

A more detailed explanation of How a Downtrend (correction) turns into an Uptrend:

The major stock indexes rose impressively on Tuesday, the second day of this “attempted uptrend.” The Nasdaq was up 3.3% Friday, the S&P500 was up 3.1% and the DJIA 2.8%.  But second day of a new "attempted rally" is too early to indicate a new Uptrend.

Historically, market bottoms have a particular form:

(1)  In a downtrending market (a correction), one or both of the major indexes (see above) has an upward reversal. This is Day 1 of an Attempted Rally and usually gets little attention. (A market that is in a Downtrend may have several rising days as it falls. So, “No”, I don’t get too excited about a single, strong upward reversal day.  But I usually see it and note it...., hoping it will hold above its recent low long enough to have….

(2)  A follow-through day on day 4 or later of this “Attempted Rally” to signal a new Uptrend has started: The F-T day is a “blast off” day – one that rises significantly in price with higher volume indicating the big money is jumping in! (NOTE: Both rising price and rising volume are required for a“follow-through” signal to start a new Uptrend.

The minimum price rise to signal a new Uptrend changes based on several factors including the current market volatility.  In 1999’s wildly upward galloping market, the F-T day had to have a minimum of a 2% rise. More commonly, the minimum F-T day price action I am looking for one or both major indexes are 1.7% in this volatile market but it has been lower in quieter markets.

If the index undercuts its recent low, the attempted rally is over.

A cancellation of an Attempted Rally occurs when one of the index undercuts the recent low, and is NOT uncommon – this is what a downtrend (correction) can look like:

>>> The indexes fall... then rise for a few days (attempted rally).... but never have a follow-through day.... and then fall again, frequently undercutting the recent low.

When an index undercuts a prior low, I just start looking for the next Attempted Rally rise and start counting again.

REMEMBER:

>>>>> Your assignment is to build a watch list of great stocks with strong ratings, near breaking out from well-formed bases….so you have a place to look for your first purchases. Only buy stocks that meet your CANSLIM criteria AND are breaking out on that F-T day. You don’t have to buy full positions (you can). William O’Neil required every money manager to buy something that first day.  He knew the market looks completely different when you actually own some of it.”

Wishing you, “Many Happy Returns,”

Charlotte Hudgin, the Armchair Investor,   (214) 995-6702

>>>>FOR MARKETSMITH SUBSCRIBERS (at Investors.com): Friday’s MarketSmith workshop including the 3-WavesDown pattern was not to be missed. And the recording is on the MarketSmith site – available to MarketSmith subscribers.

 

Please send your questions, comments and suggestions to:

Charlotte Hudgin, editor@armchairinvestor.com

 >>> I am happy to talk to you about the market. Call me if convenient at (214)995-6702.

If I don’t answer, please leave a message with your number. so I can call you back.

 

 Yikes!!The percent of A and B rated stocks fell for 3 weeks then popped almost50% last week

·      From 20%  of the market three weeks ago

·      29% in just one week (asof Friday.)

There was a lot of selling gain’ on over the last3 weeks:  The percent of As plus Bsdropped from 33% to a low of 19% a week ago. Then the “end of quarter (9/30)” passed andthe buying took off at the end of the week.   STAY TUNED!!!!

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