A follow-through day is a special message from the market.
It's saying, "Go ahead and buy great stocks that are breaking out of proper bases. The broader trend is again your friend."
Not every follow-through leads to a successful uptrend. But research shows that every successful major uptrend over the past 100 years was preceded by a follow-through — no exceptions.
Taking action when a follow-through takes place will dramatically improve the timing of your entry into the market after a significant correction has ended. The Big Picture column tracks follow-through days for you.
What is a follow-through day? It's a big advance by at least one of the major indexes — the Nasdaq, the NYSE composite or the S&P 500 — in higher volume than that seen in the prior session.
Such strength indicates that institutions are loading up on stocks.
How big must the follow-through be? A 1% gain used to be sufficient. But due to higher volatility in recent years, the required gain is now much higher.
Volume on the follow-through need not be above average. It simply must increase from the previous day. But the follow-through day must appear on Day 4 or later of an attempted rally. Many of the best follow-throughs have popped up from Day 4 to Day 7, although there's nothing to say that a Day 15 signal wouldn't work.
In practically all cases, anything sooner than Day 4 of an attempted rally would not be a valid follow-through.
Any one-day gain by any broad-market average after logging a recent low would qualify as Day 1. Volume is not a consideration.
Let's look at a classic follow-through the Nasdaq logged on Sept. 1. The index had sunk 17% from its April 26 top when it bottomed on Aug. 27 1.
Note that the market had been even lower during that correction. It had fallen to 2061.14 on July 1, then rebounded 2.
The NYSE composite and the S&P 500 followed through on July 7, but the Nasdaq's volume was lighter that day 3. The market's rally didn't last long.
The Nasdaq's Sept. 1 follow-through
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