One of the more amazing things I’ve noticed about the rally over the last 2 weeks is that it has come without any 1% Follow Through Day (FTD) on rising volume. Investors’ Business Daily first published and popularized the concept of the Follow Through Day (FTD). Though they have changed the definition slightly over the years, I have found their original definition to be useful in several studies. My tests go back to 1971, which was the inception of the Nasdaq, and also as far as some of my volume data goes. Since that time there has never been a rally that has taken the SPX from a drawdown of at least 8% to a new 50-day high that was not inclusive of a FTD – until Friday.
This puts this rally in uncharted territory, which is always a little bit of an uncomfortable place for me. A FTD could still occur, and just because we have had a strong 9-day rally does not mean a bull market has already been missed. But one purpose of the FTD concept is to help in identifying market bottoms. If we are already at a 50-day high, then I would say this is one case where the FTD has let traders down in try to identify that bottom.
Note: There was a 1% FTD in the Russell 2000 last week. I do not look at the Russell 2000 for FTD purposes. My studies have always looked at the Dow, Nasdaq, and SPX. The Nasdaq goes back to 1971, and I wanted to be sure to include that index initially. The Russell only has history back to the mid-80s. I feel consistency is important when testing and therefore I only look at those 3. IBD and others may sometimes look at additional indices. For consistency in testing, I don’t. And this is the 1st rally where none of those 3 have registered the FTD before hitting a 50-day high.