Yesterday’s strong gains across the S&P 500, Nasdaq, and Dow were hard to ignore. After nearly two weeks of chop and fear following the "Trump Pump" regarding the 90-day pause of tariffs, we finally saw a full day, broad-based rally with real thrust behind it.
While I would’ve preferred to see overwhelming volume — something that just blows the 50-day average out of the water — we did get a clear uptick in volume versus the previous day. And according to the framework laid out by William O’Neil and Investor’s Business Daily, that technically qualifies as a follow-through day.
So, what exactly is a follow-through day, and why does it matter?
William O’Neil, founder of IBD and author of the classic trading book How to Make Money in Stocks, coined the term to help identify potential market bottoms. The idea is that true, lasting bottoms are rarely identified by a single day’s bounce. Instead, the market needs a few days to digest the low — then show strength, in the form of a powerful rally on increased volume.
Here’s how IBD typically defines a follow-through day:
“A follow-through day is a gain of 1.25% or more in a major index (like the Nasdaq or S&P 500) on higher volume than the previous session, occurring on Day 4 or later after a market low.”
That’s exactly what we saw yesterday.
Now — is this a guarantee that the bottom is in? Absolutely not. Even O’Neil noted that follow-through days can fail. But statistically, it’s one of the more reliable early signals of a potential trend change. It’s a green shoot. Something to pay attention to.
For me, it’s enough to warrant shifting gears slightly. Not a full-blown risk-on mode, but maybe a few test drives: a handful of smaller, low-conviction positions in quality stocks that had been leading prior to the correction — especially those that have now pulled back to key support or are showing signs of stabilization. I did one such trade for All Star Options subscribers today.
This could be a great spot for fliers. The kind of trades where the risk is defined and tight, but the upside can be meaningful if this bounce turns into something more.
Of course, we’ll need to see follow-through to the follow-through, ideally with another big-volume up day soon — and without undercutting recent lows. But for now, the tape just gave us a reason to lean in a little.
Stay nimble. Stay open. Stay tactical.
Sean McLaughlin | Chief Options Strategist, All Star Charts
