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IBD Follow Through Day Moves Market Into "Confirmed Rally"
BY MARTIN GOLDBERG, CMT

http://www.financialsense.com/Market/wrapup.htm

<SNIP>Wednesday’s rally brought about an Investors Business Daily (IBD) follow through day thereby putting the market in “confirmed rally” mode. IBD’s word on the stock market as of Tuesday evening was, “market in correction.” But with Wednesday’s action, the benefit of the doubt moves from the bears to the bulls all within a single day. In recent years, the IBD method has been as good as any in predicting the intermediate term position of the stock market. Also relevant is the fact that what they consider to be leading stocks are acting well. While a cynic can throw several rationales at the recent action of the stock market, one trades against IBD’s method at their own significant risk. With regard to IBD, when you find a hot guru, it pays to follow his advice. Trading against the methodology of the hot guru can be both demeaning and expensive.

Below you see the daily chart of the Nasdaq composite. Last Wednesday’s mid-day turnaround which put the market up well off of its lows of the day was considered to be the initial rally. It is relevant that when the Nasdaq composite broke below 2,340 mid day last Wednesday, that was an apparent new low. The quick turnaround flashed a signal that the market’s character had not changed and bears were in for a rapid and tradable rally against their position. Once again, it was a losing proposition to sell into apparent weakness and once again, it was a winning proposition to buy an apparent break of technical support. Over the five days ending on Tuesday, it appeared suspect to the bullish case that the market was advancing, but on anemic trading volume. But when 2,410 was broken and then successfully tested this Wednesday morning, and the Fed said what the market wanted it to say, an IBD follow through day was produced. (The trading volume on Wednesday was only average, and would have been less than average except for the relatively high trading volume in the Nasdaq 100 ETF.)