Is It Safe to Buy?

by Darrin Donnelly on June 22, 2011

On Tuesday, the NASDAQ blasted its way to a 2.2% gain on increased volume.  This Accumulation Day came on Day 4 of the market’s rally attempt, which began last week when the NASDAQ tested the March low of 2600.

It’s worth noting that last week’s bottom came right near the 10% correction mark.  That is, 2600 was about 10% below the NASDAQ’s May 2nd high.

Tuesday’s action gave us what is known as a “Follow-Through Day.”  The “Follow-Through Day” term was coined by Nicolas Darvas disciple and founder of Investor’s Business Daily William O’Neil.  It’s a powerful tool for determining whether the stock market has shifted from a Downtrend into an Uptrend.

Follow-Through Days usually occur 3-10 days into a rally attempt.  They consist of a market index making a major gain – usually of 1.5% or more – on increased volume.  The increased volume requirement is crucial as it confirms that the big institutions are stepping in to buy.

As you can see on the NASDAQ chart below, Tuesday was clearly a Follow-Through Day.

This means that we have shifted from a Downtrend into a new Uptrend.

However, the first few days of a rally attempt can be erratic.  Follow-through signals sometimes fail.  The market can snap back into a Downtrend quickly.

For this reason, it is vital that you watch leading stocks closely.  Don’t be too aggressive in jumping back into the market.  Pay attention to key support levels and keep an eye on how stocks such as LULU do in new-high territory.

Is it safe to buy right now?  Yes, but only top-rated Darvas stocks that break out of perfect bases.  And consider smaller initial positions while we wait to see if this Uptrend is for real.

Which stocks should you be considering?  Keep up with them in the pages of Darvas Trader PRO, which you can try out for less than $2 per day.

 

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