04/26/2012: GARY ON NATIONALLY SYNDICATED INVESTORS EDGE RADIO BROADCAST

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http://archives.warpradio.com/btr/InvestorsEdge/042618.mp3

JUST LETTING YOU KNOW

IBD, called yesterday as a Follow-Through Day

I got a lot of emails about this. Here’s what that means.

William O’Neil studied the history of bull and bear markers and tried to figure out the defining characteristics that show up during bull and bear markets. His goal was harness these characteristics and figure out what drives these markets either to the upside or the downside.

What he realized is that every bull move throughout history has had something called a Follow-Through Day. The Follow-Through Day does not equal a bull move 100% of the time. But every bull move has started with one. Thus, we follow it.

Here’s what a Follow-Through Day is:

  1. You take any low in the market.
  2. 4 to 7 days later, you get a move on heavier volume than the day before on any of the major indices.
  3. Recently, it’s been between 1.7% and 2% for the move. These percentages change with markets and their volatility.
  4. Yesterday, IBD called a Follow-Through Day, even though it was only 1.4%.

I received a lot of emails overnight. Let me say two things:

  1. I believe it was last May that there was a Follow-Through Day of 1.4%.
  2. It failed miserably.

Does that mean this will fail? No. We’ll look for signs that it’s not…and that it will.

That’s all. I too question 1.4%, when they really want 1.7% to 2%. But I must tell you that every time I’ve tried to argue with O’Neil, I’ve lost. Basically, I’m going to look on this as a Follow-Through Day, until proven otherwise. That proof could come tomorrow. You could get huge distribution tomorrow and then you get a huge turn down. Typically, you know if a Follow-Through Day is going to fail within the first 3 days. If you start to get real distribution within 3 days of one, you’re in real big trouble. If you start to get big distribution on days 4 through 7, there’s less of a chance to fail, but still not good news.

But the other thing you want to see following a Follow-Through Day are stocks coming to life. And must tell you, on a day today – a bunch of stocks came to life, that includes a bunch of areas, a couple of areas, and some names. So I thought today was a pretty darn good day.

But you don’t just use one day as evidence. You continue look for more and more evidence.

Now the other part of the equation I got from the emails was: Could this just be end of month “Window Dressing?”

Sure. They’re very good at it and we do know we’re heading in to May. For me though, I’ve got to treat it as a Follow-Through Day until it shows me it’s not.

And that’s it.

And if you want a better understand of all this, get How to Make Money in Stocks by William ‘ONeil. Do a little bit of work and homework on your part. 

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Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.