In September, the S&P 500 fell 4.9% and the Nasdaq lost 5.8%, their worst monthly performances of 2023.
Even better, October has the most follow-through days, confirming a new stock market rally. That's according to research by Eric Krull, co-author of The Lifecycle Trade.
What Is A Follow-Through Day?
A follow-through day is a sign that big institutions are supporting a new stock market rally attempt, suggesting that it stands a good chance of succeeding.
During a correction or bear market, look for the first up day on one or more of the major indexes. That's the start of a stock market rally attempt. If the indexes soon fall back below recent lows, the rally attempt is over.
But if a rally attempt continues for a few days, investors can look for a follow-through day, starting on day four. That's when one or more of the major indexes rises at least 1%-1.25% on higher exchange volume than the prior session. Volume doesn't have to above average, but the stronger price and volume action on a FTD the better.
Not all confirmed stock market rallies succeed, but FTDs are present at every market bottom.
When Do Follow-Through Days Occur?
| Month | # of FTDs | FTDs that confirm money maker/life changing rallies | % of FTDs leading to big rallies |
|---|---|---|---|
| January | 19 | 6 | 31.6% |
| February | 16 | 4 | 25.0% |
| March | 29 | 8 | 27.6% |
| April | 23 | 9 | 39.1% |
| May | 21 | 4 | 19.0% |
| June | 28 | 7 | 25.0% |
| July | 24 | 8 | 33.3% |
| August | 28 | 9 | 32.1% |
| September | 19 | 3 | 15.8% |
| October | 35 | 13 | 37.1% |
| November | 19 | 6 | 31.6% |
| December | 25 | 11 | 44.0% |
| 286 | 88 | 30.8% |
Some 35 follow-through days have taken place in October, according to Eric Krull's research from 1949-2014. That's significantly more than any other month, with September's 19 FTDs among the lowest.
Further, October also has the most FTDs that end up starting "money maker" or "life changing" market rallies, according to Krull. A money maker rally is one in which the Nasdaq rises 5.5% or more in the first 20 trading days after a follow through. A life-changing rally goes up at 8% or more in the first 20 days.
Krull discussed this on a recent IBD Live, with the video clip embedded in this article.
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Stock Market Trick Or Treat?
But there's a trick to that October treat. A big reason why October has so many follow-through days is because the stock market bottoms so often in that month. The major indexes and leading stocks often suffer big losses in October, sometimes compounding sharp declines from prior months.
So investors can't assume that the big gains will kick in immediately when October starts.
October 1998 Follow-Through Day
The late 1998 bear market and October FTD is one of the more famous market turns. The Nasdaq peaked at 2028.06 on July 21, then proceeded to plunge 33.1% to the Oct. 8 low of 1,357.09 in a violent, double-bottom pattern. At the October low, the Nasdaq was down 19.9% from the end of September.
After the Oct. 14 FTD, the Nasdaq immediately had a subsequent follow-through day that was even more powerful in terms of price and volume. The composite surged 20.8% over the first 20 trading sessions, from the FTD, making it a life-changing rally. The Nasdaq's historic dot-com run ultimately peaked on March 10, 2000.
October 2022 Follow-Through Day
The 2022 bear market bottomed on Oct. 13, 2022, with a big upside reversal. But at the session low, the Nasdaq was down 4.6% from September, and off nearly 38% from the November 2021 peak.
The S&P 500 and Nasdaq had FTDs on Oct. 21. But the new rally struggled, especially on the Nasdaq, which approached the October low in early November. Finally on Dec. 28, the Nasdaq marked a new bear market closing low, though shy of an intraday low.
A few days later, the market staged a new FTD on Jan. 6, confirming the big rally to start 2023.
Stock Market Now
A stock market rally began heading into October, with the Nasdaq staging a follow-through day on Oct. 6. But Nasdaq hit resistance at the 50-day line and fell back as Treasury yields skyrocketed. The Nasdaq and S&P 500 finally undercut their recent lows on Oct. 22, definitely ending their rallies. A new rally attempt tried to get going, but the Nasdaq and S&P 500 undercut lows again on Oct. 25.
The Nasdaq rose slightly on Oct. 27, technically starting a new rally attempt. But another FTD seems off the table in October.
At the Oct. 26 low, the Nasdaq was down 5.1% vs. the end of September, but significantly more from its Oct. 12 high.
Please follow Ed Carson on X/Twitter at @IBD_ECarson, Threads at @edcarson1971 and Bluesky at @edcarson.bsky.social for stock market updates and more.
