Follow Through Day
Starting on the fourth day of the attempted rally, look for one of the major averages to ‘follow through’, meaning it shows a booming 2% or more gain on heavier volume than the day before. This tells you the rally is much more likely to be real.
– William O’Neil, Legendary Investor and Founder of Investor’s Business Daily, How To Make Money In Stocks (3rd Edition), pg. 65
Ever since the market’s ferocious rally on Monday October 13th, I’ve been looking for a follow through day as confirmation of selling exhaustion and real demand. According to O’Neil, the follow through day should come on the fourth to seventh day of the attempted rally to give the strongest signal. Today is Day 12 of the attempted rally. But I still think it qualifies.
Volume was moderate earlier in the day but it appears to be taking off into this late day rally. It is looking like it will be a 90% Up Day as far as volume as well though it’s not clear if it will be for Advancers/Decliners.
This is what I was looking for for confirmation and I’m very encouraged. I don’t think you should pile into this move as pullbacks are inevitable. But this is an encouraging sign that the worst of the panic has passed.