Page 1052 - How to Make Money in Stocks Trilogy

Buying Checklist 39

“See” How to Time the Market
Learn more about how to spot changes in market trends with short videos at
www.investors.com/GettingStartedBook.

Two Signs of a Change in Market Trend

Below is a brief explanation of the two main signals that indicate a shift in
market direction: “Follow-through days” that note the start of a new
uptrend, and “distribution days” that alert you to a weakening market.
Since this book is focused on helping you get started, I’ll just cover the
basics here. You can dig deeper by taking the Action Steps at the end of this
chapter and by doing the “Must-Do Steps” we discussed in the Introduction.

You Don’t Have to Track These Changes on Your Own
If the market shifts from a correction to an uptrend or vice versa, you’ll
know it just by looking at the Market Pulse. So while it’s definitely helpful to
understand the mechanics behind follow-through days and distribution
days, don’t worry if it doesn’t sink in on the first go. Remember, investing is
a skill best learned in stages. You can dig into more details and advanced
topics later.

“Follow-Through Days” Mark Start of New Uptrend

When the market is in a correction, how can you tell if the direction has
changed and a new uptrend has begun?
Look for a “follow-through day.”
IBD’s ongoing study of every market cycle since 1880 has found that no
sustained uptrend has ever begun without a follow-through day.
So when you’re in a down market and wondering when it’ll be time to get
back in, don’t guess. Wait for this time-tested signal to appear and the
Market Pulse outlook to shift from “Market in correction” to “Confirmed
uptrend.”

How Does a Follow-Through Day Work?
Let’s answer that by seeing how the March 12, 2009 follow-through day
marked the end of the severe 2008 bear market and the start of a robust new
bull cycle.
Think back to what the mood in the country was at that time. In 2007–2008,
the housing market had tanked, and the entire financial system had been