Follow    Thru    Days

"Things take longer to happen than you think they will, but then they happen much faster than you think they could."

By Al Gore, former vice president

$DOW dropped almost  4,000  points as of last Friday February 29th from a high of  29,406.75  attained just 11 trading days ago on February 12th.  That's a decline of  -13.59%  

Ouch !  ouch!  ouch!

We had a very successful  'Follow Thru'  day on October 14th.  That was the  TIMING  signal for retail investors to start dipping their toes back in the market.  It signifies the day that the market has reached the bottom and institutional investors (professional money managers like hedge funds, pension funds n mutual funds) are accumulating stock positions of their choice.  We as retail Growth stock investors take notice of this day and start accumulating stock positions.  We mimic the institutional behaviour and follow those stocks that are going up in price with increase in average daily volume of shares traded.

How successful (last 18 weeks) was the last  'Follow Thru'  day of October 14th?

$QQQ - Growth Stock Index was  +24.20%

$SPY  - General Stock Market Performance Index was  +14.33%

$XLK - Technology Sector was  +26.14%

Most of these gains were given back in less than 2 weeks.  There was absolutely no reason for any retail Growth Stock investor to have not taken any action to mitigate losses.  A week ago on Monday Feb 24th, all 3 major indexes - $DJI, SPY and $QQQ all gapped down and sliced below the 50 day simple moving average like a knife through butter.  As a Growth Stock investor, one ought to monitor stock positions everyday and start scaling back when the  'distribution days'  begins to pile up.  We had a cluster of 6 such days last week.  One of the key indicators to utilize is the 34 day ema (exponential moving average).  This gives you an early signal to start scaling down your stock positions before you face the kind of vertical drop that the market suffered in the last 2 weeks. 

CORONA  Virus  and  the  Market 

Last week I received lots of emails and questions about what investors should do with the fears of the virus.  I had a very simple answer:

Stop  drinking  CORONA  beer  and  Travel

I headed to Mexico end of January for 2 weeks when the virus news spread in the media faster than the spread of the virus itself.  I was enjoying visiting the annual migration of the Monarch butterflies to the Michoacan state.  Millions of these butterflies migrate from Canada and great lake states every year from January to March.  They settle in the central highlands that are at the elevations of over 8,000 feet.  It was an exhausting climb and I was running out of breath - just like the way the  $QQQ  index had climbed  +24.2%  in 18 weeks and it finally ran out of breath too.  Getting down that high altitude was a breeze and I wasn't running out of breath any more.  I only got down 2,000 ft in altitude and it felt like I was ready to do it again.

Friday Feb 29th, the market began to rally during the last half hour and the  $QQQ  bounced off the 200 sma (simple moving average).  Volume was the highest I have seen in the last 5 years.  Only positive thing to happen on Friday was that the index did close above the 200 sma.  Is it possible that the market could snap back and make a V shaped rally for 16 weeks - just the way like it did from January 4th 2019 to May 3rd 2019?  That's a possibilty.  We could have the snap back rally this week.  It is not a prediction but anything in the market is possible.  One should have knuckled down and scrutinized the Growth Stocks this weekend like I did.

'Follow Thru'    days occur when we least expect it.  I can still remember when our nation was focused on fighting Iraq when Saddam Hussein had annexed Kuwait.  We had almost 1/2 a million troops in the Persian gulf and the media was hyper focused on analysis and the video coverage of the war.  We had the market rally and some of the leading Growth Stocks went on to make huge gains within weeks when IBD (Investors Business Daily) declared a  'Follow Thru'  day.  Retail investors that did their homework and deciphered the stock charts, ended up attaining substantial gains in the market.  

I shall part with some words of wisdom about the market and what one should do as a trader and an investor. 

• Have patience and don't despair.  
• Most of all, protect your capital and learn to mitigate your losses.
• Minimize your trading and don't be buying dips.  We may have the market slide down further.
• Learn to identify stocks that are exhibiting a strong relative strength and are holding up better than the  $QQQ  or the  $SPY.
• Have an actionable stock watch list prepared and be ready to start out with a small test position as soon as the market rallies and we have a  'Follow Thru'  day.

Happy Trading!

Amin