In sports, we talk about following through with your body to help achieve maximum performance with good form. We witness this in tennis, golf, bowling and many team sports. As a kid, my dad would tell me to always 'follow-through' with a thank you note or phone call, as that other person is likely to remember a positive experience.
In charting markets, we look for stocks that tend to also follow-through, a confirmation that an established trend or change can continue onward. This requires time and patience, something I find many traders and investors seem to lack. The chart can be a great friend to the trader or a notorious enemy if looked at with rose-colored glasses.
We tend to see only what we care to see in a chart, especially if we have a position working. But given the volatility in markets we cannot afford to make too many mistakes. A stock can have strong day but without follow-through can fizzle out. Take Boeing (BA) last week. This company has struggled mightily to retain its stature since two crushing plane crashes and a pandemic sidelined many airlines for months.
On July 28th, Boeing released some strong earnings and guidance, the stock gapped up sharply and sailed higher right into a resistance area (50 ma). From there, the stock fell and closed on its lows, still up nicely for the day. If you didn't see the day's action you would have thought it was a great day. Yet, the following day we did not see Boeing follow-through, and then Friday the stock was hammered with the market selling off.
Now the chart shows Boeing with a rejection at a key level, reversal lower and ready to test the 200 ma once again. Any bullish trader/investor would clearly be frustrated by this action, but waiting for that follow-through would have spared you from wasting time and energy, and more importantly, your capital.
While a follow-through day is not a requirement, it certainly gives us more confidence that buyers are supporting the stock at certain levels. A rejection, such as we saw in Boeing is good information, too. Stay on the sidelines until the trend change from bear to bull shifts.
(Boeing is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells BA? Learn more now.)
