The recently volatility has the market looking loose, but traders pushed stocks to the highs of the day at the close. Volume ran lower for much of the trading session until the final minutes when volume jumped to push the NASDAQ over the edge. However, on the NYSE volume came in lower on the day showing institutions weren’t excited to accumulate shares. Nonetheless, the NASDAQ notched a follow-through day and it must be respected.
While we will respect the follow-through day it should be noted that follow-through days in June are more prone to failure. History demonstrates this and there isn’t a reason as to why they fail. June follow-through days are just more prone to failure and before we go nuts trying to buy longs know your history.
There is a strong possibility this market can rally quite a ways before failing. We could rally for a few weeks only to roll back over. We’ll be taking clues from the stocks that breakout and lead this market. If we begin to see breakout failures in leading stocks it’ll be a clue the market simply isn’t ready to continue its move. Another sign will be the market flashing distribution.
While there are some warning flags we won’t completely ignore or even fight this trend. It’ll be important we either get another follow-through type day or at least solid price advances with higher volume. If this market continues higher on lighter volume it’ll be another sign this confirmed rally will likely fail. Big Wave Trading will certainly be on top of the market action and we’ll be ready for whatever the market gives us.
Stay nimble and always have a cut loss plan. It is essential you protect your downside.
Make sure to check out this note about follow-through days.
Wow!!. I’ve never seen such an about face before, especially after only yesterday’s extremely negative commentary with all the reasons why the stock markets likely will be going down from past experiences. But note that Past Rallies, especially recent, also were on LOW volume throughout and succeeded quite well. Yes, the Follow through may last 3 weeks or 3 months!!. Your commentary is so easily perceived to be resisting what the market says, and predisposes you to your own biases. You’re yesterday’s commentary is now in the waste basket. Hopefully, you don’t go 2 for 2 with today’s commentary.
Hi Eric,
About face, Tuesday’s action was quite bearish closing at the lows. The price action on all the indexes are wide and loose, the S&P 500 is still below its 200dma. Just because you get a follow-through day doesn’t mean you are 200% margined. July and February were much tighter and present many more stocks with tighter patterns. Volume does matter, my point about the NASDAQ was that it wasn’t running higher all day like other strong FTDs. Remember, for a FTD to occur volume simply has to be higher than the day prior.
Do not marry to one side of the market, be fluid. All the greatest traders in the world are fluid and do not marry a side.
Thanks for reading!
To Eric:
I guess BigWave_Traders commentary doesn’t “belong in the waste basket” anymore. Anyways, we have no biases to either side of the market. We go with the trend. Try looking at my past big winners and studying the current big winners I had during the last uptrend to see what it is like when you go with the trend and not your opinions.
Great job with the commentary, BWT. You are spot on, on the daily action. Being able to move to one side or the other in a drop of a hat is a sign of a successful trader. Marrying either side is the problem and we never do that. 🙂
Soros and I think Livermore(gotta confirm here) both say that at market turns, volatility increases dramatically( ‘action on all the indexes are wide and loose’……so what. Instead that’s a confirmation sign of a trend change about to occur!.). If such is the case then we’re in for a trend change to Bullish from Bearish. Decreasing price volatility on the S&P500 is not a pre-requisite to have for a bottom in place. Also back in March 9, 2009, a follow-through signal occurred when the S&P500 was waaaay, waaaay below the 200 dma. What subsequently followed was perhaps the largest bull bounce rally trend in history, which is still going strong as of now, disregarding the standard corrective pullbacks, as a matter of fact!!.
If you we use your volatility, the VIX peaked back in Oct of ’08 ony to see March lows of ’09. In fact, the March 9th bottom and subsequent rally off the lows, which by the way came from a 60% bear market correction was not wide and loose no too mention Volume was above the 50 day volume average. Although V-shape the move had very big volume spikes. VIX made a high of 89.53 on 10/24/08 and on March 9th the VIX closed at 49.68…I’d say that was a decline in volatility. But, bottom calling is a sport so few actually get right. Again, we rally here we are already long a few stocks and we aren’t about to fight a trend weak or strong. With that said, February and July were much stronger in a reversal in trend.
Today is why you can’t just plow in when the conditions are not right. We could rally from the lows here, but being down 2.5% on the NASDAQ @1:30pm EST is highly unlikely.
I hope Eric isn’t getting burned too badly. A major distribution day following so close to a follow-through day means almost certain death for this confirmed market rally.
This was a VERY lame follow-through day with few to zero leaders having nice charts. The few leaders holding up have chart patterns that indicate that they will not be able to hold these highs very long. Charts are broken everywhere on huge volume, leaders are breaking, new longs are not working, beautiful pretty charts are no longer showing up in my scans, my shorts are working, and my short scans are full of strong candidates. This was a very weak follow-through with little volume and the videos I will be making on my forums will show you the difference between successful market follow-through days and ones like the one we just had that only leads to lower prices. This market is in big trouble until we see a powerful follow-through with strong volume above the 50 day volume average that also has leading stocks forming nice bases. The trend is still very bearish and nothing is bullish out there besides defensive sectors. The leaders are broken and the ones that are not broken yet have chart patterns that indicate they should be moving lower eventually. However, ANYTHING CAN AND WILL HAPPEN. TECHNICAL ANALYSIS IS A WINDSOCK NOT A CRYSTAL BALL.