During stock market corrections, it can be easy to make the mistake of ignoring the daily market action. After all, the stock market isn't going up, so what's the worst that could happen? Well, you could miss some of the next uptrend's best stocks.
History is indicative of how fast the stock market trend can change, which underscores the importance of being prepared before the market improves.
When IBD's stock market outlook changes from "correction" to "confirmed uptrend," that means investors should increase their exposure to stocks after having zero to little during the correction. IBD has a recommended exposure scale based on market conditions.
How To Prepare For Stock Market Uptrend
First, let's illustrate how we get to a confirmed uptrend.
Look for at least one major index to attempt a bottom, ideally the Nasdaq composite or the S&P 500. The first day the index closes higher counts as Day 1 of its attempted rally. On Day 4 and later, you start looking for the index to rise sharply in higher volume than the previous session.
That's a follow-through day. The Nasdaq's 1.6% surge on Nov. 1 in higher volume marked a follow-through for that index.
The follow-through gives investors the green light to start buying leading stocks breaking out past correct buy points. Sync your trading to the stock market direction by gradually committing capital to leading stocks.
But remember, that while no market uptrend has ever begun without one, not every follow-through succeeds. Each day, check The Big Picture for the latest market outlook.
Learn How To Time The Market With IBD's ETF Market Strategy
How To Find Leaders During Market Correction
You can find many of the next uptrend's leaders well before a follow-through happens.
One way to do this is by using the relative strength line. The RS line measures a stock's price performance vs. the S&P 500. Look for stock charts in which the line is trending upward, which means the stock is outperforming the S&P.
The RS line is in all IBD Charts and IBD MarketSmith. In addition, the IBD Stock Screener includes a list of top-rated stocks with lines at new highs. MarketSmith also has the "RS Blue Line Dot" list, which screens for RS lines at new highs.
Two useful MarketSmith lists to check once a follow-through happens are "Breaking Out Today" and "Near Pivot." The latter shows stocks nearing buy points in bases, and the other flags stocks rising past buy points during the session.
To find more stock ideas, check Stock Market Today. Check IBD Stock Lists, like IBD 50, Big Cap 20 and Stocks Near A Buy Zone. These features identify bullish patterns and buy points and should be checked every day.
This article was originally published March 31, 2023, and has been updated. Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and stock market news.
