Reversal sessions in the equity market to the magnitude realized on Thursday are very rare, but they typically indicate indecision resulting in a spotty track record of forward returns for stocks.
*** Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities. As always, the use of technical and fundamental analysis is encouraged in order to fine tune entry and exit points to average seasonal trends.
Stocks Entering Period of Seasonal Strength Today:
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Super Simple Seasonal Portfolio
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The Markets
Stocks surged on Thursday following a reversal in the trajectory of the US Dollar and as market participant brace for the start of earnings season on Friday. The S&P 500 Index surged by 2.60%, reversing sharp early day losses that followed another hot read of inflationary pressures in the US. The benchmark bounced from support at 3500 to retake levels above the recently broken June lows, charting an outside reversal candlestick and raising doubt over whether the breakdown realized in the first half of this week was legitimate. Momentum indicators are curling back higher, instantly showing a positive divergence compared to price and suggesting that selling pressures are waning. Major moving averages are directly overhead, including the 20-day moving average at 3710, a short-term hurdle that has rejected each rally attempt since the middle of August. The declining 50-day moving average at 3944 remains the significant threat overhead, according to our intermediate process, providing a hurdle to sell into in order to alleviate equity exposure so long as this negative intermediate trajectory persists. The 50-day moving average is poised to cross back below its 100-day moving average, an event that was last triggered on February 24th, which, coincidentally also saw a significant reversal session in stocks. From our experience, reversal sessions, such as what was observed on Thursday, seem to occur quite often around moving average crossover events, something that may be chalked up to a reactionary response from trading algorithms that rely heavily on major moving averages in their process.
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Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
