IBD viewed yesterday's action as a follow through day, and it did meet the technical definition as the S&P 500 was up nearly 2% on higher volume than the previous day.
Nonetheless, the stocks on my watchlist had a decidedly muted reaction - not the kind of explosive action I'd expect to accompany a follow through day. In fact, the industry groups that moved the market yesterday have been among the weakest performers.
What does all this mean? I will keep an open mind. It is obvious to everyone that the financial system and US economy are in big trouble. Whatever form the government bailout takes, it will most likely increase inflation and although it will help, we are still in for a protracted economic slowdown. In spite of this, the market may rally and I'm ready. I will take a conservative approach and view this as a bear market rally - I think we have some ways to go before the next bull market.
I will buy stocks only on convincing breakouts. Many of the stocks I owned in the previous failed rally have held up very well during this correction and remain on my watchlist. If the market wants to run a little I will join the ride, but I'm not going to take any undue risks.
-Geoff
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