Wednesday, July 23, 2008

Quick Note On Follow Through Day

Investors Business Daily did not declare Tuesday a Follow Through Day. It did qualify under the original 1% rules, though. I conducted most of my studies using the old 1% rules. One primary reason is that moving the requiremnt to a 1.7% move, several large rallies would have been missed. There are a couple of things to note when the market puts in an “Original Follow Through Day” (OFTD) like today. First, based on the 64 OFTD’s I found in my study between 1971 and January of 2008, the expectation over the next week was positive. Second, however the market moved over course of the next week was a predictor of the success or failure of the FTD about 2/3 of the time. You may refer here for more details on these statistics.
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8 comments:

  1. Johan LindénJuly 23, 2008 at 5:11 AM

    I thought that the FTD was a sell signal according to your stats. A majority of the FTD has failed after coming from a +12% decline. True or false?

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  2. UnknownJuly 23, 2008 at 8:20 AM

    I can't tell for sure, because I can't get accurate volume figures, but the Russell 2000 has followed-through based on yesterday's action on the fifth day of its rally attempt - up 2.75% yesterday. I am surprised IBD didn't mention anything because normally, they say if one index follows-through, it means the whole market did. Again, maybe the volume wasn't higher on the small caps for them to count it as a FTD.

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  3. AnonymousJuly 23, 2008 at 5:23 PM

    I guess CBI is pretty much is in "short the market" territory?

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  4. Rob HannaJuly 23, 2008 at 8:32 PM

    Johan,

    Yes. They have failed more often than not after a 12% + decline. This doesn't necessarily make them a sell signal, though. Potential rewards are many times significantly larger than the risks.

    In either case, I personally would consider them reliable enough in either direction to trade the index based on a "FTD System"

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  5. Rob HannaJuly 23, 2008 at 8:33 PM

    Mac -

    Good observation. Thanks.

    Anon - The CBI doesn't have a "short" signal. Either long or neutral.

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  6. Rob HannaJuly 23, 2008 at 8:51 PM

    Johan,

    by "many times significantly larger" I meant to say "often significantly larger". Sounded confusing when I just read it.

    Rob

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  7. TimAugust 6, 2008 at 1:24 AM

    Wondering if some of Lowry's research (90% up days) can help determine which FTD's will be successful.

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  8. Rob HannaAugust 6, 2008 at 1:31 AM

    Tim,

    The short answer is no.

    The long answer was published in the July 27th Weekly Research Letter. Send me your email and I'll send you the Letter.

    Rob

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