JUST LETTING YOU KNOW
When we came into today, we were walking into Day-3 off an attempted rally, while the market is in correction. As we have told you on this show, we do not know:
- How long a correction lasts
- How far it goes
- Whether it turns in a bear market
- Whether it turns into a vicious bear market
- Whether it’s something of short-term, intermediate-term or longer-term
We just go with the flow and we look for clues in price, volume and leadership.
As you know in past years, we’ve had to do a little bit more than just that. We have to think about, “what’s the Fed’s next move?” Why? Because you can go back a good three years and see that whenever the Fed has announced more printing of money, the market went into gear.
And there’s been a lot of wondering about whether the market was going to continue down. Was the Fed going to come and make some sort of announcement of more printing of money?
Now there in the midst of printing money right now…Operation Twist. But I believe it expires at the end of June and the Fed has a June 19 and 20 meeting. But I do believe they speak to congress tomorrow or the next day…something like that.
Well, here’s what we do know:
Two Fed heads came out and stated, “We need more aggressive easing” meaning more printing of money because we can’t go more than zero percent interest rates.
So if you’re looking for a reason why we’d be up big today, I guess you can look at that.
I care about outcome. First off, let’s do this by the book. In order for the market to confirm that a correction is over, there has always been one characteristic of the market that has occurred prior to that new rally.
And it’s something called a Follow-Through Day (FTD). It’s not something that I’ve made up. It is something that others have studied throughout market history. And we know certain things. All we are doing is studying what works and what doesn’t work in the markets.
Throughout history, not every FTD worked. But every bullish rally we have had started with a FTD. A FTD is simple:
- You get a day the market hits a low.
- 4 to 7 days out, you get a big move on heavier volume than the day before.
Only problem. Today was only Day 3. And there is no rule for a FTD on Day 3. Now you say, “Why not?” It’s just all about works and what doesn’t work.
Volume was heavier than yesterday, though still tepid. And the move today was strong and definitively had darn good short covering into the close. Basically, that means that everyone everybody that came into the day short hoping the rally would reverse recognized that it doesn’t reverse around 3:00 – 3:15 PM EST and all of a sudden they start covering their shorts…and it’s a self-fulfilling prophecy and boom, you go out at the high of the day.
So let’s put this together.
It’s not a FTD. What do you do?
Well let me be simplistic. Just like we did last week, and just like we did the week before…and the week before…and the week before: I’m going to look at the all the leading stocks in the market and what they look like, just in case this leads to something.
Keep in mind that Friday of last week, the market broke some ugly support on some volume. Very ugly action. Here’s the best thing I can tell you today.
We had something of a failed breakdown. It’s the opposite of a failed breakout.
That is some good news.
But I leave it at that.
Editor’s note: During Gary’s radio show, he walks you through some of the leading stocks by name. Click the play button below to listen to Gary’s show its entirety.
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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.