Stock Market: Uptrend Confirmation

July 11, 2013:

Today’s stock market rally provided a confirmation day for a new uptrend, ending the recent stock correction.  Let me define how this is determined.  After a stock market correction, the market will attempt a rally.   Day 1 of a rally is defined as an upday from the previous day’s low.  Days 2 to 3 may end higher or lower, with the important point that the market does not close below Day 1’s close.

How the stock market acts on Days 4-7 are very important.  A confirmation day is an upday on 1.7% or higher volume that occurs within 4-7 days of a rally from a bottom.  The confirmation day applies to the Dow, S&P 500, and NASDAQ indexes.  A  strong rally on Days 4-7 on higher volume has been proven to mark the end of corrections and the start of bull markets.  It doesn’t always happen, but the odds are on your side to put on stock positions once again.

A renewed uptrend should be treated with care, especially early in the new uptrend.  Do not look at this as the water is now safe to jump in with both feet.  Rather, wade in cautiously and put on positions that are not your full positions.  Also, do not use all of your “dry powder” funds.  Keep some money on hand for especially strong breakouts that come later in the rally.  There is nothing more frustrating than having no more money to buy a great opportunity.

Look for the best stocks, whether growth stocks breaking out of established chart patterns, or dividend paying stocks that show strength.

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