Key reversal day

 

As I sat in my office last Thursday afternoon with my associate, Craig Aucoin (who is ValueTrend’s resident fundamental analyst extraordinaire!) – I noted that the market was in the midst of performing a classic intra-day reversal pattern. The Dow and S&P500 large-cap indices both declined intra-day almost 1.5%, followed by a positive close. The sharp reversal, which didn’t quite meet the criteria of a candlestick “hammer” formation (the open and close would have needed to be closer to the top of the day’s movement), was nonetheless indicative of a key-reversal day.

s&p reversal

Essentially, a key reversal occurs when the market moves down sharply during the day, then finishes up by the close. It tends to happen because the “dumb money” or weaker hands are selling in a panic. Smart money then moves in to pick up the bargains—closing the market higher. Confirmation is necessary of a key reversal (or hammer) formation. You need a few days positive follow-up – if you’ve read my books or followed this blog, you know I like to see about 3 days follow-up to be confident of the validity of the reversal. As I write this blog, we’re into day two, and markets are up this morning. So far its looking good – but I’ll hold off on spending the rest of my cash for a day or two yet. If you watched me on BNN last week, you will know that we used the selloff during the early part of last week and the late part of the preceding week to invest about half of our cash. So far, that seems to have been a good decision.

S&P nearterm

 

Seasonality tends to be positive from the later part of October and on. We’re approaching that point. Based on the longer termed uptrend on the chart above, I’m confident that the winter will deliver positive market returns. It’s my opinion that investors can continue to look for bargain stock prices over the next couple of weeks as opportunities present themselves. I know I am.

 

By the way—if you reside near Brantford, Ontario—please come out and join Craig and I this Thursday at the Brantford library for a presentation and discussion surrounding the current market environment. If you’re in Toronto – don’t miss my presentation at the MoneyShow the following Thursday. I have a special presentation for that show, guaranteed to open up a bit of discussion!

Details below:

Upcoming events with Keith Richards

Brantford Public Library: Thursday October 9th, 2014. 7:00PM. Technical analysis concepts from the book Sideways are discussed – come out and join the discussion!

Toronto MoneyShow: Metro Convention Ctr. Thursday October 16, 2014. 5:30PM.  I’ll be giving a special presentation entitled The Great Rotation on Thursday October 16th at 5:30pm where I will reveal how to identify 2015’s market outperforming stocks, along with tips on avoiding the losing stocks and sectors.

 

ValueTrend equity performance numbers posted

 

We’ve posted our September performance numbers on the internet at https://www.valuetrend.ca

Click on the top performance tab, and then “equity” to see how active management can make a difference!

 

 

4 Comments

    • We did start picking away slowly recently, as I noted on BNN show–eg–bought CDN banks on yesterdays move down. Still have cash, as noted in the blog, want to see the market hold some support before going all in. Some individual positions are coming into support – you can start cherry picking but most certainly we should continue holding cash!

      Reply
  • Hi Keith

    Your 3 day appears to be backed up with today’s wild ride. I have to reread your book as the first time I was too keen to get through it all. On a daily S&P500 chart I see 1909 and 1870 as the next support levels. Granted, I am wrong as much as I am correct. What is your view on the S&P500?

    Thanks in advance

    Reply
    • 1st level support 1930–minor
      More important support is the last low at 1900–that is very important not to be taken out (again, up to 3 day spikes below are ok)

      Reply

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