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Tackle Today: Do you see the signs?

August 12, 2022

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«Intraday Reversals, what do they mean?»

Traders,

Yesterday was an interesting day in the markets. Shortly after the opening bell around 10ish the markets, specifically the S&P 500 futures, turned lower and didn’t look back all day. If one was to look at the day all by itself it might seem like a normal trading day, however, if one was to look at the totality of the day and the previous days price action and also takes into consideration the economic data that was released as well as the technical picture then it may not seem quite as normal. You see all the things I just described are signs that the market gives us to let us know that things may be changing or just different from what we expect. Let’s take a look at what some of these may mean and why it could explain, at least partially, why the markets were strong one day and maybe less so the next day.

The first sign we have is the CPI number that came out the day before, this number came in at a whopping 8.5% and the markets rocketed higher on that economic data. The bullish uptick could be easily explained as it was not as bad as we thought it might be as it was supposed to be 9.1%. The theory could also be that the markets had already priced in this event altogether. I believe that when inflation is four times the stated target rate that it may have a more bearish effect on the markets but fundamental and sentimental data and news can take time to play out and therefore the push higher is maybe not as shocking.

The second sign that something may not be exactly as it seems comes to us from the charts. The technical picture although being quite bullish the last couple of weeks has some challenges ahead if the bulls are to retain control of the price action. All the major indexes are either in overbought territory or fastly approaching that condition. There is negative divergence on the intraday charts as well. These conditions can be ripe for an intraday reversal and that is exactly what we saw in yesterday’s trade.

There are other sign such as volatility and the role it plays in the markets and a few other technical factors that can help explain why saw an intraday reversal yesterday. These signs regarding an intraday reversal are important because it signal a larger change may be coming and as traders, we always want to be prepared for changing conditions so if you haven’t set up your routine to include looking for signs of an intraday reversal then perhaps it is something to consider, your portfolio will thank you.


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