Max,

FTDs have preceded most if not all significant rallies in history. I don't know of an exception, on occassion IBD says the rally resumes after a small pull back that does not qualify as a correction. There certainly have been some challenging calls this year and last. IBD is admitting that maybe 6/21 was a FTD on the S&P500 with a 1.3% gain. This is a hingsight view based on the recognition that we just had a big up week. We all knew a relief rally was coming and we got one. Is it a real sustainable rall? Only time will tell.

Lets look at some statistics under the assumption that 6/21 was a FTD. Distribution soon after a FTD usually leads to rally failure. Distribution on the first day after a FTD has led to rally failure 87% of the time with 75% failure rate on the second day and 73% on the third day. We got distribution on all three days.

Undercutting the lows of a FTD has led to rally failure 90% of the time. We have undercut the 6/21 lows.

High probability of failure does not mean certainty of failure. My definition of failure is that the rally does not last long enough for normal CANSLIM investing. I equate this with rallies that last less than 5 weeks long and make less than 9% gain from the FTD close. We won't know based on this definition that we have a successful rally here until late July. In the mean time we watch the action of the leaders. Friday saw strong market internals with a Eureka condition. A Eureka as defined by Ian Woodward is a day where the ration of NYSE advancers to decliners is greater than 3 and the ration of advancing volume to declining volume is greater than 5.4 and the TRIN or Arms inex is less than 0.63. This all occured. Impulse indicators like this indicate bullish sentiment that pervades in time more than a single day. I still call this rally high risk however.

I also tend to select a leading index and watch the behavior of that index. What it does the market usually follows. I select the Dow Transporation index at this point as it is the only index that has now closed at a new 52-week high. If this index continues to rally I predict that the other indices will make new highs also. A quick reversal of this index probably means the same for the market.