True, some of the largest single-day stock market gains come during bear markets. December 26th, 2018 marks the first time the Dow Jones industrial average gain 1,000 point in a single session. Experienced stock market investors know, one big up day does not mark the end of a downtrend.
Investors should also note, Wednesday’s advance was the first day of a rally attempt. If stocks can stage another meaningful advance in the next 7 trading days, preferably on day 4 through 7, the worst of the selling may be behind us. Rally attempts followed by follow-through days are no guarantee, but they often signal the start of a new uptrend.
There were other signs of optimism in Wednesday’s big advance. Stocks from retails, software, internet and consumer spending led the market’s upside. Growth stocks are preferred over mature, defensive sectors when leading the market out of its first bear-market correction in seven years.
The ratio of advancing stocks to declining stocks delivered wide breadth, another positive. Nasdaq winners outpaced losers nearly 4-to-1. On the NYSE, winners led by 5-to-1.
Also of note, there is a tiny but growing group of quality growth companies forming attractive chart patterns. These companies feature strong fundamentals, especially in terms of sales and earnings growth. Often, they are smaller, younger companies introducing new products and services. It is one of the more encouraging signs given the renaissance of innovation and entrepreneurship underway, something we have not experienced to this degree since the 90’s.
If stocks can hold levels this week and deliver a strong rally on any day next week, that would deliver a perfect follow-though day and improve the odds of a new rally as we enter 2019.