- Fake rallies
- At some point on the way down, the indices will attempt to rebound or rally. Bear markets normally come in 2 or 3 waves, interrupted by several attempted false rallies that usually fizzle out after 1, 2, or 3 weeks and occasionally 5 to 6 weeks or more [my note: created by both bargain hunters as well as big players going for the short squeeze].
- Counting rallies and follow-throughs
- 1st day of an attempted rally is when the index closes up from the prior day (doesn’t matter if the intraday low is lower than the prior day).
- If the intraday low of the 1st day of the attempted rally is undercut in the subsequent days, then the rally fails and the count is resetted back to zero.
- As long as the days after the 1st day of the attempted rally stay above the initial intraday low of the 1st rally day, you are still in the rally process.
- Look for a “follow-through day” in the 4th to 7th days (inclusive) of the attempted rally. A “follow-through day” is when the index closes up 1% or more with a jump in volume from the day before. Market is then in a new uptrend.
- “Follow-throughs” after the 10th day indicate the turn may be acceptable, but somewhat weaker.
- An initial “follow-through” can occur on any one of the indices and is usually followed a few days later on another index.
- False signals
- About 20% of the time they [the follow-through method] can give a false buy signal, which is fairly easy to recognize after a few days, because the market will usually promptly and noticeably fail on large volume.
- Most true “follow-throughs” will usually show strong positive action on good volume either the day after the “follow-through” or several days later. Convincing power and strength is what you want to observe.
Install