Here’s IBD’s Take On Yesterday’s Action

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As a follow up to my “quick update” yesterday, here is IBD’s take on the rally:

1) Because the correction lasted less than a month, there hasn’t been much time for stocks to form proper, seven-week bases.

2) Also remember that while every market uptrend has started with a follow-through, there have been some false signals.

3) Wednesday’s bottoming signal came less than four weeks from the start of the correction. That’s unusually brief for a correction to work itself out.

3) Over the past decade, most successful follow-throughs occurred at least two months from the top. Moreover, follow-throughs occurring four or five weeks after a top were usually unsuccessful.

Click through to read the entire article:


Big Gains Signal Shift In Stock Market
BY JUAN CARLOS ARANCIBIA
INVESTOR’S BUSINESS DAILY

Stocks surged Wednesday after the Fed seemed to take its finger off the rate-increase button.

The Nasdaq jumped 2% on higher volume. That left no doubt the market made a follow-through — a big move in the early phase of a rally that usually confirms a new uptrend.

Other indexes also made large strides. The S&P 500 and NYSE composite dashed 1.7% each as NYSE volume also increased.

At 2:15 p.m. ET, the Fed announced it was leaving its fed funds rate unchanged for a sixth consecutive time.

While that was expected, the stock market keyed on a change in the central bank’s policy remarks.

Gone was a reference of “additional firming that may be needed.” It was a phrase in prior statements that Wall Street saw as the Fed’s inclination to raise rates.

Not that the new statement was all that dovish. Core inflation has been “somewhat elevated,” the Fed added.

Still, buyers flooded the market.

The follow-through changed the market’s outlook from a correction to a confirmed rally, making it less risky to buy stocks again.

But that doesn’t mean investors should buy wildly. Disciplined trading is a must. Relatively few high-rated stocks are near buy points. Many are extended or still forming bases.

If the new rally has stamina, more stocks will break out or find support at their 10-week moving averages — areas where you can make stock buys with less risk.

The market will be your best guide in the coming days and weeks, depending on how opportunities play themselves out.

Because the correction lasted less than a month, there hasn’t been much time for stocks to form proper, seven-week bases.

Also remember that while every market uptrend has started with a follow-through, there have been some false signals.

Wednesday’s bottoming signal came less than four weeks from the start of the correction. That’s unusually brief for a correction to work itself out.

Over the past decade, most successful follow-throughs occurred at least two months from the top. Moreover, follow-throughs occurring four or five weeks after a top were usually unsuccessful.

For now, the best signs point to a rising stock market. To be sure, some of the market’s worries have subsided.

The Shanghai index — whose 9% plunge on Feb. 27 set off the U.S. correction — is practically back at its prior highs.

Two lenders saddled with highrisk mortgage defaults won financing to stay afloat.

Fremont General is selling $4 billion of subprime residential loans to an unnamed buyer. Hedge fund Citadel LP took a 4.5% stake in Accredited Home Lenders.

However, top-rated stocks only kept pace with the broad market. The IBD 100 rose 1.8%. It typically outperforms the general averages in a healthy market.

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