Battle Lines are Drawn

The stock market is putting up a valiant attempt to find a bottom and indeed there are some promising signs. However we cannot jump the gun and should wait for a follow through day. A follow through day typically occurs four to ten days from a recent low. Today is day four from the last low. To see a follow through day we must see higher volume than the day before with a 1-2% increase in a major index. Yesterday we had such an increase but the volume was actually lower than the day before. The fact that the bottom four days ago appeared as a key reversal during the day is promising indeed and then we saw a big up day like yesterday, but it just isn’t enough.

My readers are now mainly in cash avoiding this 10-13% correction. We do not know at this stage if it will get worse. As I have said before the best up days come in down market to draw people in. As hard as it is stay patient and wait for better prospects. We want to invest in an “odds favor” environment, we may be close or could just continue on down again. The best position to take is one of caution until we see a little more positive action. Those that try to get in at the bottom run a tremendous risk of going lower. It is better to be as sure as you can that the bottom is in then invest (no guarantees unfortunately).