⚠️ Personal research and trading journal — not investment advice. The author does not provide licensed advisory services.
The market is currently in Correction. Six distribution days. Below the 21-day EMA.
When a market is in Correction, the most common question traders ask is: "How do I know when it's over?"
The IBD answer is specific: you wait for a Follow-Through Day. Not a two-day bounce. Not a recovery to prior highs. A Follow-Through Day — a precise signal that institutional buying has returned in force.
Here is what it means, how to identify it, and why it matters.
The Definition
A Follow-Through Day (FTD) is a single trading session that meets all four of these conditions simultaneously:
1. The major index (Nasdaq or S&P 500) closes up 1.7% or more — a strong, decisive gain, not a drift.
2. The volume on that day is higher than the prior session — this is the institutional fingerprint. Large funds need volume to deploy capital. When a big up-day happens on elevated volume, it means real money moved in.
3. It occurs on Day 4 or later after a confirmed low — the market must first attempt to bottom. IBD counts days from the first day of a rally attempt. Days 1-3 are the "too early to tell" period. Day 4+ is when an FTD is valid.
4. The low that preceded the rally attempt is not undercut — if the market rallied three days, then fell below the starting low, the rally attempt is reset. You restart the day count from zero.
Why Not Just Buy the Low?
The temptation is to identify the bottom when it is happening and buy immediately. "The market fell 10%. This looks cheap."
The problem: corrections that feel like obvious bottoms usually aren't. Selling pressure often returns in waves. The first bounce after a big down-move is frequently a relief rally — one or two days of short-covering and bargain-hunting — followed by another leg down.
IBD studied historical market cycles going back decades. The finding: a proper Follow-Through Day significantly increased the probability that a rally was sustainable rather than temporary. Markets that produced a valid FTD on Day 4-25 of a rally attempt went on to produce lasting uptrends at a much higher rate than those that didn't.
Buying before an FTD is buying into uncertainty. Buying after an FTD is buying into confirmation.
What an FTD Does Not Guarantee
An FTD is not a guarantee that the rally continues. Some follow-through days fail — the market rallies for a few sessions, then the distribution pressure returns.
The IBD data shows that roughly 20-25% of FTDs fail within 1-2 weeks. This is not a reason to ignore them. It is a reason to size positions appropriately and maintain stops.
The FTD tells you: "Institutional buyers have shown up. Risk is now worth taking." It does not tell you: "The correction is definitively over and you can buy aggressively."
You respond to an FTD by buying your best-quality setups at full position size with proper stops — not by going 100% invested immediately.
How to Use an FTD in Practice
During the Correction (now): - No new buys, regardless of individual stock setups - Manage existing positions with tighter stops - Maintain a watchlist of stocks that are forming new bases during the correction — these are often the strongest leaders in the next uptrend
When you see a potential FTD forming: - Confirm: is this Day 4 or later? Was the prior low not undercut? - Confirm: is the gain 1.7%+? Is volume higher than yesterday? - If yes: the gate is opening. Prepare your watchlist.
After a confirmed FTD: - Start buying your highest-conviction setups - Expect some volatility — the first week after an FTD is often noisy - If distribution days pile up quickly (4-5 in the first few weeks), the FTD may be failing — reduce exposure
What to Watch for in the Current Correction
The current correction began from NASDAQ approximately 26,500 (prior week high, June 15). The low as of this writing is the June 17 close, around 26,000.
Recovery markers I am watching:
1. The June 17 low (~26,000) must hold — if the index undercuts this level, the rally attempt resets.
2. A close back above the 21-day EMA — this EMA acts as the first major resistance in a correction. Reclaiming it on volume is the first meaningful sign.
3. Day 4+ strong close — if the index rallies from June 17, Day 4 of that rally would be June 24 (Friday June 20 is a holiday). Any 1.7%+ close on volume higher than the prior day from June 24 onward would qualify as an FTD candidate.
4. The 10-year Treasury yield — the June 17 selling was driven partly by yield repricing. If the 10-year stabilizes at 4.43% or pulls back, the rate headwind for growth stocks eases. An FTD is more reliable when the rate environment is not actively working against it.
The Leader Watchlist
One productive activity during a correction is building your watchlist for the next uptrend.
The leaders that form tight, constructive bases during a correction — holding above their 50-day moving averages while the index falls — are often the first to break out when the FTD arrives. These are the stocks that institutional buyers protected. They are the next leaders.
During the current correction: - Stocks that hold above their 21-day EMAs while Nasdaq is below its own deserve attention - Stocks building handle formations or flat bases while the index corrects - Stocks whose RS Lines make new highs during the correction — these are showing true leadership
I am not buying any of these yet. But when the FTD arrives, these are the first names on the list.
The FTD concept is the primary recovery signal in IBD's methodology. It was developed by William O'Neil based on historical analysis of every major market cycle from 1900 onward. The failure rate and reliability characteristics cited here are based on IBD's published research.