Why Tuesday’s Strong Reversal Suggests A Short-Term Edge For The Bulls

The market tested its recent lows on Tuesday, and that may have washed out the sellers, at least temporarily. Tuesday did not see a “turnaround” with a higher close, but it did manage to rally strongly off the lows. And the big gap lower, reversal upwards and higher close triggered a few interesting Quantifinder studies. The study below is one example of what I am seeing.  It simply looks for gaps to 50-day lows and partial reversals.

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These numbers are impressive, especially over the 1st couple of days. Below is a look at a 2-day profit curve.

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The move from lower left to upper right serves as some confirmation of the edge implied by the numbers. This suggests the rebound Tuesday was strong enough, and from a low enough level, that there is a good chance the market will continue to rally over the next few days. Short-term traders may want to take this into consideration when establishing their trading bias.

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