IBD Market School

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My reference to the break below here was simply that it broke the low of the “Pink Rally Day” and therefore the count to Day 4 and possible Follow-through day was reset.

Personally, I do not “trade” Fibonacci levels, but I watch them just like any other support-resistance zone. Especially when there is confluence of levels. I added a couple aspects to my annotated NASDAQ, including another Fibonacci level from the next highest low to the highest high, as well as a support line at some previous gap-ups:

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The 18000 level is a critical level to keep an eye on for several reasons. First, it’s a psychological even number buy point. Think Livermore originated that, the “buy (or sell) at the 100-level” thing. Not potent, but people still do that. Secondly, it is a level of support with two prior peaks and one trough. Note, these are not hard exact numbers, but zones of influence. Third, it’s the 50% retracement from the low in early August and fourth, the 61.8% “Golden” retracement line for fib’s from September low. It’s the confluence of such zones that makes it a key area.

If it breaks below with a close, next zone is around 17425-17500. I’m slightly encouraged that it seems to be holding. People do debate about if piercing the zone matters as much, but I trust closes more. Actually, it’s slightly encouraging for me if the Bears laugh and push the price down and through levels, and then get whooped by Bulls fighting back and pushing it back up. It’s still a toss-up with indecision and uncertainty in the markets but it’s not a slaughter. VIX is struggling to climb also, but remains elevated.

Sorry, long-winded answer for “no.” lol

Lakedog

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Great answer thank you for all the context.

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SPX and NASDAQ both had Rally Days. First possible Follow-Through Days are Wednesday.

Needs increase of >=1.0% and by orthodox rules a greater volume than the day before. Webster says screw the volume but trying to follow the rules. It’s a low bar.

Lakedog

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Same Chart, Different Day:

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Went immediately to next support level. Mainly the Fib levels of the Aug and Sep lows. There is some small chart support there with a gap and retracement level. VIX at 27.86. SPX and NASDAQ both got Rally days undercut, so wait for next rally starts,

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So, both SPX and NASDAQ were rally days, both above the low of yesterday (so not pink) and above 50% of the range. Neither strong candles but IBD don’t care. First possible FTD is Monday then any day to follow so long as todays low is not undercut. Criteria are >=1.00% with volume above the previous day. Even 0.01%.

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So, wanted to clarify briefly a misspoken comment from me last night:

That should be the low of the rally and here’s where it gets confusing. While yesterday was a Rally Day (Close above prior day), yesterday’s low is not the rally low, rather Tuesday’s low is the rally low. The concept is that rally’s are basically “mini-bases.” There is accumulation that is initiating so direct from Mike Webster, he refers to a day before the rally day (which is Day 1 in IBD Market School) as Day 0 and it’s low, if it is lower that day 1, is the level that must fail should this rally not succeed. I said Wednesday’s low on accident. It’s important as so far, it has not been undercut (yet) so rally remains on so long as it doesn’t undercut in the second have of today.

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It gets difficult as there are so, so many nuances and “sub-rules” that seem to come up, but that’s why I’m trying to go through all this. Although, I’m not sure that what I will learn is that it the entire system is too complicated to really use. But if it helps trigger when to get fully back in and out, that likely is worth it. But yet, we are still waiting. The earliest Follow-Through Day is day 4 on Monday.

Lakedog

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It’s helpful Lake because it is confusing so thanks for going through it. I was out when the nasdaq lost the 50SMA so that has saved me some pain and my losses so far this year are around 6 percent so I am happy for that and is one of the reasons I started watching IBD. Now if we can find the bottom and get back in we might have a great year, who knows. I think it is important to keep your positions small and losses tight until you can get a bottom. I tried a position last week that lost and this week that lost. But my losses are .20 % of my portfolio. I think it is important not to be scared but be ready for a bottom.

Any way thanks for going through this.

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Gotta love it, while SPX fully undercut the rally low (both low and the close did), the NASDAQ low was 17239.44 and Tuesday rally low was 17238.24. Technically, the rally was not undercut. But as Mike Webster loves to say, “it was in the spirit of…” an undercut to me. Besides, it was one big ugly red bear candle. I wouldn’t jump on board just because of that. Will be interesting to see what plays out tomorrow and what the IBD Gods have to say tomorrow about it all.

Note, QQQ and SPY ETFs also did fail, it only was NASDAQ Composite that didn’t by the hair on my…

Lakedog

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Yep, IBD will maintain their dogma until it is undercut. As Webby says “We take it day-by-day, we don’t predict”. If we do have an FTD, I will be very skeptical, plenty of them fail. IBD always reminds us to scale in on and FTD, not go back to 100% invested.

With the “reciprocal” tariffs official starting on April 2, it would be hard to imagine a good FTD unless there are some signals that other countries are caving in ahead of the day.

Coiled Spring Scenario: We bounce around, mostly down for a couple of weeks… Then tariffs go on April 2, within a week, we see negotiations. Gold swan: Russia and Ukraine have a real peace deal a week later. There is your FTD and new bull run.

But we don’t predict.

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Both indexes closed up on the day, both with relatively strong candles.

S&P closed up at 5638.94. Since it was undercut on the previous Rally day, today is a new Rally day (Day 1) with a low based off of yesterday’s low of 5504.65. Wednesday is the earliest day to consider a Follow-Through Day, so long as Monday or Tuesday does not undercut the rally low.

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NASDAQ Composite also had a nice up day, closing at 17754.09. However, since the rally low from Tuesday technically did not get undercut, today was day 3. That means Monday is the first possible FTD. While it basically was undercut, being within 0.1% of the low, I will march with the rules. Besides, it’s likely to only make a difference of 1 day which is really nothing. In addition, 50% or so of Rally’s fail. We haven’t made it yet.

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I’ll post later today what the recommendations are if Monday is a FTD for NASDAQ. Note, IBD rules are if ONE of the major indices has a FTD, that starts the count.

But a couple comments. These were nice moves but NOT definitive from my view point. While close to being full-on bullish marubozu candles, they were not. Both had upper wicks, albeit small, but that still showed that the bears had some push-back. While the SPX cleared Wednesday’s high, is was by 3 points and again with bearish pushback. NASDAQ failed to clear it’s Tuesday high. Had they both cleared without any wick, it would have been stronger. Now it’s a tiny zone of resistance.

However, it should be noted that VIX closed well down at 21.77. Encouraging. So is the CPCE, with a peak at 0.94 (0.713 on the 5 period SMA). Both contrarian signs.

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Nothing definitive, but at least there is a little water lapping at my toes, hopefully not just a sneaker wave but the tide turning. Keep in mind, these are Lakedog comments, not IBD. Weigh accordingly.

Happy hunting,
Lakedog

Again, I’ll try to layout the entrance “rules” and next “signals” in the next day or so.

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Since we are attempting to rally I thought it time to try and layout what I have gleaned from the TOS coding and a ton of different videos and written shorts. Again, this is not directly from Market School and I could easily have it wrong. If there is anyone out there who has taken Market School and notices errors, please, please correct any misinterpretations.

THE BIG VIEW
Basically, they have a series of “signals” for either to buy or sell portions of your positions. We’ll breakdown signals shortly, but first let me layout the general overall buy approach. As has been laid-out before, they buy and sell in allocations. Note, they have a minimum of 10 different buy signals (some can recur, so 15 or more calls to buy) as well as a minimum of 14 Sell signals. Yet, the main investment allocations often are listed in 5 steps. Still haven’t completely grasped how to make that all work, other than you tend to ignore many of the signals once fully invested, but keep track of the signals. Makes it confusing. Here are the main 5 allocations:

Buy Signal Percent Allocation Market Exposure Sell Signal Percent Sell Market Exposure
1 30% 30% 1 10% 90%
2 25% 55% 2 15% 75%
3 20% 75% 3 20% 55%
4 15% 90% 4 25% 30%
5 10% 100% 5 30% 0%

Obviously, you can create and adapt your own allocation amounts.

While the tracking of days is on one or more indices, a positive move by any one of the indices triggers the action. The buy and sell is on whatever tickers you deem buys and are IN A BUY POSITION. You don’t just do the buy regardless of stocks price action. If no individual tickers are in position, the suggestion is to consider the indexes or ETFs. These signals are counted or tallied up and down with each buy or sell signal. Obviously, using the above exposure count means as soon as you go above 5, you’re already committed so don’t do anything, but you still keep count.

GENERAL BUY/SELL GROUPS
It seems easier to understand if you break down the rules into groups related to triggers.

  • Rally and Follow-Through Days
    • FTD
    • Undercut of FTD
    • Failed Rally
  • Interaction with the 21 ma
    • Low Above the 21 ma
    • Trending Above 21 ma
    • Living Above 21 ma
    • Break Below 21 ma
    • Trending Below 21 ma
    • Living Below 21 ma
  • Interaction with the 50 ma
    • Low Above 50 ma
    • Break Below 50 ma
  • Accumulation/Distribution Days
  • Higher Highs
  • MISC

RALLY AND FOLLOW THROUGH DAYS
What we’re dealing with now, trying to come out of a significant pullback, correction or Bear. Rally day as has been noted.

Buy 1 (B1): Follow-Through Day. As previously discussed, on day 4 or later after rally, increase greater than 1.0% (based on sliding scale determined by average percent gain of up days over prior 200 days) and volume greater than previous days volume.

Recommendation is to buy something, anything ON the FTD, so reacting near the end of the day or whenever you feel the days action is defined. While their allocation breakdown suggests 30%, it has been commented many, many times to “just buy something….even 1 share.” It’s the mental action of getting in the market more than trying to time it. Remember, a good half of rally attempts fail. Given the current conditions, smaller test entries may make more sense.

**Buy Switch. They refer to a Buy switch, which seems to just mean putting out the green buy flag. Having a B1, the first FTD, turns it on. Once it is on, you should act on any buy signal unless you are fully invested. To turn it off, the Rally Attempt fails, distribution count is full or circuit breaker is triggered (cross those bridges as we come to it).

Buy 2 (B2): Additional or Subsequent FTDs. Any subsequent days that meet the criteria of .+1.0% gain and volume greater than the day previous, and occur within 25 days of the initial RALLY DAY are Additional FTDs and buy signals.

Sell 1 (S1): Follow-Through Day Undercut. Close below the low of the initial FTD. Sell what you just bought and look for another FTD to react.

Sell 2 (S2): Failed Rally Attempt. Drops even lower and undercuts the low of a rally attempt.

They break it down into an undercut of a “major rally low” or a “minor rally low.” It get’s confusing for me, but in the situation we are currently in, everything is already “off” so getting the first FTD (B1) and then undercutting the FTD (S1) turns buy switch off again (major low). Should it drop further it doesn’t functionally matter. However, during an attempted rally in a pullback while still overall in an uptrend, there are times other buy signals may have been turned on and are still active when you are trying to make a rally in a pullback. That is referred to as a “minor low.” Undercutting this rally doesn’t totally turnoff the buy switch, but reduces the market exposure by two.

I’m going to hold here and will list out the other signals in “chunks” over time. The reason to try and do this live is to learn them. It gets confusing and awkward over time. Here’s a screenshot of the TOS chart using the system…gives me a headache.

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Again, anyone who’s done the class or has a better understanding of the rules, please chime in.

Lakedog

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Marketsurge gives you a snapshot of the allocation every day the market is open. Sometimes they don’t update it but mostly they do.

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Yes, I think you have to have paid subscription for that page, maybe not. I also think the perspective on that is slightly different, although can amount to the same thing. That snapshot is giving you a recommended total investment of your funds. So being at most invested 20% of funds, rest cash.

Market School is focused on specific amount invested in individual stocks. Probably not much different and likely adds to the same, but they also use specific allocations. You can adapt of course.

My interest is not in following all the rules, but seeing if some of the major decision making can be added such as reentry during times like now and when to thin positions. The moving averages rules by themselves, I suspect, are very, very helpful. Also, since I have it thinkscripted, it’s simple to use on individual stocks and I’m looking at that right now and it’s encouraging.

Lakedog

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Correct, It also counts down the distribution days but when the sell signal is given they stop counting the distribution days. When we go back to buying then they will count the distribution days again.

So is Marketsurge. It is the IBD product that was call Marketsmith. They used to only have 3 allocations but they have now taken it to 5 allocation. Right now they are at the lowest, 0 to 20 percent. You can use it for funds if that is what you wish but I only invest in single stocks.

That is exactly what I am using it for. So far so good. It had me get out before I was down to far. I have lost 6 percent this year to date. I consider that a win because the stocks I invest in if I was following MF strategy I would most likely be down 20 to 50 percent.

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Volumes lower in all indexes as well as below 1% gain. Watching for Follow-through day.

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SPY, $SPX, QQQ, NASDAQ all made > 1% but on low volume. Interestingly, volume has been slipping the last several days. Although, my volumes were acting a bit funny like there was a technical glitch?

VIX also broke below 20. Candles still not strong with long wicks and closes down into the finish. Somewhat Spinning Top, indecisive candles.

IWM or Russell 2000 not typically followed by IBD as a signal index, but it had a Rally day 3/14 on Friday, so today is Day 4 and it popped 1.56% with an increase in Volume. Technically a Follow-Through Day. Make of it what you will.

Lakedog

Addendum: Technically QQQ volume finished up 0.0952%. Compared to 13.8% drop in the actual composite (NASDAQ) volume. Neither the S&P composite nor ETF had increased volume. I’m sticking with Composites as the more definitive marker. Watching all, including IWM, move is interesting but you have to draw some lines somewhere. Draw your own.

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IBD explicitly says they don’t use ETFs like QQQ and SPY. They also seem to be using NYSE vol for S&P price moves.

No FTD today.

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That was close. The nasdaq looked like it had it but the volume at the end did it in.

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While we wait for a FTD, let me list some more of the standard buy and sell signals. These seem more intuitive and straight-forward, having to do with price-moving averages interactions. There are no volume criteria that I have found. The main focus is the 21 sma.

Buy 3 (B3): Low above 21 day sma. When recovering from a bear or correction, the first moving average that price typically interacts with is the 21 sma (relative to the 50). When the intraday low is at or above the 21 day sma, you have a buy signal. The do cite it should be an up or flat day.

Buy 4 (B4): Trending above the 21 sma. Once price has broken above the 21 sma and the lows remain at or above the sma, there is a buy signal on every 5th consecutive day. Key is that the lows remains at or above the sma and the 5th day must be an “up” day or flat. If the 5th day closes below the close of the prior day then you wait until next up day. This is not the rally day counting, so it’s the 5th day after the prior.

Buy 5 (B5): Living above the 21 sma. Following B3 and B4, continue to buy every 5th day that the low is at or above the 21 sma. So, on days 10, 15, 20, etc. Again, the close of the day must be flat or up compared to the prior day or you wait for the next flat or up close. There is no set limit to the number of these buys, but remember, if you are following allocations, then you will at some point max out on investment total for a single position. In their recommendations, that would be 5 buys. If you are doing 10% buys, it will be 10. There are a ton of signals in this system that you ignore.

The next aspect, the sales are intuitive

Sell 5 (S5): Break below the 21 sma. Once the index has been above the 21 sma, you sell if it closes 0.2% or more below the 21sma. Obviously, they have run the data and settled on the 0.2% below, but you have to wonder if it immediately follows a B3 then any close below matters as that would be a relative sign of weakness.

Sell 6 (S6): Overdue break below 21 sma. If it has been more than 30 days since the break above the 21 sma and it now closes down below the 21, more than 0.2%, then sell. This is concurrent with the initial S5.

Sell 7 (S7): Trending below 21 sma. After breaking below the 21 sma, sell on the 5th consecutive day below the 21 sma. Only sell if that 5th day closes down, otherwise, wait until the next down day.

Sell 8 (S8): Living below 21 sma. The counter balance to B5, sell every 5th consecutive day below 21 sma. They must be down closes on that day, or wait until next day.

Not to be left out, the 50 sma gets into the action.

Buy 6 (B6): Low above 50 sma. Buy if the close is flat or up compared to day prior and intraday low is at or above an uptrending 50 sma.

Sell 9 (S9): Break below 50 sma. Sell if index closes more than 1% below the 50 sma. There is an exception for this: if the close is more than 1% below the 50 sma but the close is in the upper half of the day’s range, then it’s not activated as an additional sell. This is commonly referred to as a “shakeout” and is presumed to be market makers forcing price down to get less committed buyers to sell out. It has a higher chance of resuming the uptrend and close above higher in the near future.

This set of rules really seems to be the strongest in my opinion, relative to managing a position. They might even stand alone, but I have no data specifically supporting or refuting that. There’s still more, somewhat confusing , rules that I will try to list in the near future. Again, anyone with actual formal IBD Market School experience, please correct any errors I’ve made and feel free to add anything you’ve learned.

Happy hunting,

Lakedog

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Are you getting this from listening to Webby? Also you said this is for managing a position. So you would use it on a single stock position or is this in relation to the Nasdaq or S&P?