Last week, we experienced one of the biggest bullish intraday stock market reversals in quite some time. On Wednesday, September 11, the stock market was reeling and heading down a dark path. At the lows, the SPX 500 was off nearly 2% on pretty heavy turnover, most of which occurred in the first hour of trade.
Once the lows from the prior week were tagged (at 5,406), it was like we hit a target. The SPX 500 immediately gathered a head of steam, managed to push through short-term resistance, and finished higher by nearly 55 points (about 2.7% higher than the low).
On Thursday and Friday, there were plenty of opportunities for followthrough on that bold reversal, and those opportunities were seized. The SPX 500 is now less than 1% away from an all-time high.
Massive stock market reversals are rare but constructive
So why did the index make a sharp U-turn on Wednesday at that particular time and price?
There is no explanation unless you look at the chart. The area around 5,400 has been a good spot for buyers to step in. So that violent move down on high volatility was enough for the buyers to step in aggressively once the selling was finished.
This kind of stock market reversal is a rare event. However, the statistics from a big reversal day are strongly in favor of the bulls in the short-, medium-, and long-term. While seasonal trends are not in the bulls’ favor, we could simply look to last Wednesday as an important event that kept the bullish uptrend alive.
I charted out the weekly SPX 500 and found some levels where the index could be headed.
First up are those all-time highs at 5,670 or so. Then I see it hitting 5,700 and perhaps 5,850 as the next target areas.
Could the index test of those lows from Wednesday at the 5,400-5,410 area? It is very possible with the next pullback. Just keep in mind that it will feel like a disaster. The bulls will be filled with regret when there should be a “buy the dip” mentality. However, any pullbacks should be considered buying opportunities.
