This Study Suggests We’re Headed Back To The Highs

It has now been 5 trading days since the 2/11 classic Follow Through Day (a gain of 1% or more on higher volume). In the February 1, 2008 blog post I examined implications of market action directly after FTD’s. In that post I found this early action to be a strong indication of whether a FTD was likely to succeed or not. A move higher in the SPX over the 1st 5 days after a FTD led to a successful rally about 2/3 of the time.

In the current situation “success” would be a move to 1,147.41 or higher. This is just barely under the January high of 1,150.45. In other words, based on this study, there appears to be a good chance the market will at least test its January highs before it breaks its February lows. One thing to note is that there still has not been a FTD under the current (1.7% gain) IBD definition, so it will be interesting to see what happens here.