10/21/2022 NEW UPTREND CONFIRMED DAY 1.Consider buying one or more
THE MARKET’s MESSAGE: Market breaks through into NEW UPTREND
On Thursday, I told you I was “itching” to get back into the Uptrend. Friday gave me the signal to get in.
>>>>At the open on Monday, I will trade in my Cash for the QQQ.
If you are not familiar with the QQQ, it is an ETF (Exchange Traded Fund... a basket) of the largest stocks traded on the Nasdaq (NasdaQ is where the fund gets its QQQ name) which means in this case, it has the 100 largest stocks traded on the Nasdaq excluding the banking stocks. Why exclude the banks? Historically, financial institutions simply do not move as fast as the other high-tech companies.
Recap on Follow-through day definition:
A Follow-through day, as discovered by William J. O’Neil, founder of Investors Business Daily and investors.com, can occur on day 4 or later of a new “attempted uptrend.”
Tuesday is day4.You can see the prior 3 days on this Nasdaq chart. Note that not everyday in this 4+ day period has to be a rising day. But every day must NOT undercut the day 1 low. Since the Nasdaq is now almost 6% above the recent low, an undercut is unlikely unless this attempted rally is failing.
>>> The current “Attempted Uptrend” now in will stay in effect until one of the major indexes (Nasdaq, S&P500 or both) takes the second step. Either the Nasdaq or S&P500:
· will have a Follow-through day signaling the start of a new Uptrend, or
· will undercut the recent low (killing the current “attempted uptrend).
I was asked an interesting question today, “How can last Thursday (a down day) be ‘consistent with’ an Uptrend as I mentioned above?”
That is an important, non-obvious concept to understand. Thursday’s price-volume action (shown below) showed the Nasdaq’s price dropped. If the volume had been higher, Thursday would have been a distribution (selling-off) day. A day of heavy selling is certainly NOT consistent with an Uptrend. And every market, including the strongest rising markets, will have some down days. But if the volume hesitated, become lighter, we would know the market doesn’t agree with the drop. And that is why I was still optimistic that the market was building to the Uptrend signal.
But note: I was NOT confident enough to call it a new Uptrend on Thursday. Instead, I called out (to myself in my office,) “Show me the money!”… That is, “Show me a strong Follow-through day – a day when a major index rises 1.7% or more with higher volume than the day before.
And Friday “showed us the money!”.... Not one but BOTH the Nasdaq and S&P500 indexes had follow-through days! Both indexes rose at least 1.7% with higher volume! And we were off to the races.
Another “hint” we had that the market was ready to rally (old name for Uptrend) is found in the Accumulation/Distribution table shown below which has a sharp rise in “A” and “B” stocks – over the last 3 weeks – from 22% As and Bs to 31% , (almost a 50% increase!)
Market data tables are backward looking - they look at history, not the future. After a prolonged Downtrend (correction), even a successful new Uptrend will show a lot of “red” ratings until the market rise works its way into the ratings
Do not be concerned that the Accumulation/Distribution ratings are a "D" and two "C-" ratings. These are backwards-looking measures that include that include 3-month's of data. Just realize these ratings were recently all lowest "D" and "E" ratings (showing heavy selling). They have risen because of broad BUYING in this market.
Another way to look at the recent market shift, is the daily MARKET ACTION table profiling the Nasdaq over the last 20 days (about a month of trading.)
Look at the last 7 days! WOW!
From 4 distribution (heavy selling) days in the 11 days, to the most recent 8 days having no, zero, nada selling days!
But they did have 4 big Accumulation days of heavy buying. Note that even though 3 recent days were not accumulation days (10/14, 10/19 and 10/20) they were all solid support of a new Uptrend - they had a sell-off but only on LIGHT SELLING (see the drop in selling shown in the lower volume on 10/14, 10/19 and 10/20.)
Do you have ideas of how to enhance this nightly Armchair Investor Newsletter? Please send them to me at firstname.lastname@example.org.
OR… call me to discuss your ideas! I am always open to your creative input!
Wishing you, “Many Happy Returns,”
Charlotte Hudgin, the Armchair Investor, (214) 995-6702