William O'Neil's framework for market follow through and identifying new uptrends and to determine whether any bottom is truly durable:

Step 1: The rally attempt begins. After a correction the index must make a low and then close up from that low. Day 1 of the rally attempt is counted from that first up day.

Step 2: Wait. Days 2 and 3 of the rally attempt are ignored entirely — too early, too many false signals.

Step 3:Watch for the follow through day on day 4-7. On any day from day 4 onwards, if a major index closes up 1.25% or more on higher volume than the previous day, that is a confirmed follow through day. The rally is real.

Step 4: According to his strategy, you can then Begin buying. Only after a follow through day does O’Neil say it is safe to start putting money back to work.

Important nuances he adds:

* Follow through days on day 4 or 5 tend to be the most powerful — later ones can still work but early confirmation is strongest, with later confirmation often a higher failure rate and can easily bull trap.
* Not every follow through day works - about 20-25% fail. If the market undercuts the recent low after a Follow through Day, the signal is cancelled and you go back to cash, according to his rules.
* The best follow through days occur on the Nasdaq rather than the S&P — Nasdaq tends to lead

So basically, according to his perspective on determining market bottoms for a more durable rally, we want to see a 1.25% day on higher volume than the previous day on Tuesday/Wednesday (on QQQ ideally) for us to have more confidence in the rally.

This is just 1 perspective btw. Not everything, but it'smsomething I am watching to maybe, hopefully corroborate data I see in the SMH channel etc.

https://preview.redd.it/pt76skjni5hh1.png?width=1224&format=png&auto=webp&s=f925ed46aaff03f89a6bfef8033a98fd439e5e02

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