This column was originally published on RealMoney on July 3 at 8:09 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.I had expected a sharp rally from a negative and oversold environment, but what we got Thursday was more than I expected in one day. The Federal Reserve spoke, and the market shot up like a rocket. It's amazing how the market appears ready to fall off a cliff one day and is saved the next by one news event. I've been asked if this is the follow-through day that I've been talking about. It is a follow-through day if you are looking at the percentage the market was up. However, if you go by William O'Neil's research, a follow-through day should come on the fourth through seventh days after the first significant rally. This rally came on the 12th day. Does that count? Yes it does, but rallies after the seventh day lead to weaker moves. You also have to consider several other catalysts here. First, you have investors betting that the Fed is done raising rates. Then you have month-end and quarterly markups by funds. Next, there was panic short-covering and, finally, hedge fund money rushing in for some action. Regardless, it's price first, then volume, and they were both there.
- We will get clear new leaders breaking out to new highs on significant volume.
- Those leaders will successfully pull back and test their breakout points and then start to move higher.
- The market will start consolidating and pull back on low volume, then move higher with renewed strength.
- Advance/decline numbers will dramatically improve.
- New highs will consistently outnumber new lows.