2-17-2016 FTD

It appears we have a day-4 follow through day in progress. Volume on the NASDAQ is running 12% above yesterday. Volume on the NYSE is running 16.5% higher than yesterday.

My trading plan says that I must buy something on the day of an FTD. This rule is to get me into the market when bearish feelings are high, as so often occur when the market is correcting. However, the basis of this rule is that quality stocks are setting up and breaking out. I notice on the MarketSmith Growth 250 screen (stocks breaking out today) that zero items are meeting the screen criteria. The Growth 250 tracks stocks with quality fundamentals. Most of the stocks I am tracking for possible shorting are rallying briskly. Also, the Growth 250 screens "up on high volume" and "down on high volume" are evenly split with 58 stocks up on volume and 54 stocks down on volume. These screens require that volume is at least 15% above average and price change greater than 1% plus other criteria. I expect to see many quality stocks up on volume when the market indices are up 2% on high volume.

With this evidence, I conclude that we are either experiencing a continued short covering rally or a junk off the bottom rally or both. My general rule for this situation is to wait for a place to fade the rally or wait for quality stocks to join the action. The single stock on my long watchlist (EW) is moving up briskly off of the 50-day moving average, however.