Wednesday, August 24, 2011

Short-term Implications of Breadth on a Follow Through Day

The strong move higher on increased volume meant that Tuesday was a Follow Through Day (FTD). FTDs are a concept that was created by William O’Neil, founder of Investors’ Business Daily. I have written about them extensively on the blog. In June for the 1st time I showed that FTD’s have a better chance of success when they are also accompanied by strong breadth. Tonight I also examined the short-term implications to FTDs with strong breadth vs. FTDs without. This first study below looks at performance following FTDs that came along with an Up Issue % reading that was among the top 5% of all readings over the previous year.



As you can see there appears to be an tendency for the market to continue higher after these strong-breadth FTDs. Now let’s examine performance after FTDs on days that did not show exceptional breadth strength.




Here there appears to be no edge or short-term upside inclination whatsoever. With Tuesday’s FTD coming on breadth that put it in the top 2% of all days for the last year the short-term outlook appears better.

4 comments:

jrounders said...

There are 47 million people on food stamps. 80 million baby boomers retiring. Massive US deficit. Corporate revenues manufactured from a weak dollar. Home prices off 32% since the peak. Real unemployment and underemployment probably at 25%.What about the business owners that were self employed getting a 1099? ...they cannot even claim unemployment. How many in America have that issue which is not hitting the unemployment stats?Volatile markets entice speculation.. www.floridadaytrading.com is an interesting site. Banks do not want to take back the foreclosed homes to take the losses and carry the properties. People are not paying their mortgage and living for free thereby paying for their ipads, iphones and 60k cars. Something seriously has to change in this country.

Johan Lindén said...

However, FTD after big declines as the one we just had has less than 50% probability of success. http://quantifiableedges.blogspot.com/2008/02/follow-through-days-better-after-small.html

Market action in the days after a FTD has been a decent predictor of whether that FTD is likely to succeed.

FTD’s after day 10 have had a higher success rate over the last 37 years than FTD’s that occurred between days 4-10.

Daniel said...

Rob-

Did you look at this with one of your basic filters, the above/below 200 day SMA divider? If so, any variances to the core theme?

J-Trader said...

Found this little tidbit on Bob English's Precision Report 8/26...

"Our CANSLIM friends have noted that yesterday was the second distribution day after the August 23 follow through day (FTD), which signals an 80% chance of failure for the fledgling rally."