Why Tuesday’s bearish reversal doesn’t mean anything

By Jani Ziedins | End of Day Analysis

Dec 13

Free After-Hours Analysis: 

Tuesday was another wild ride for the S&P 500 as an encouraging monthly inflation report sent stocks flying at the open. Unfortunately, that was as good as it got and the index gave up a majority of those early gains when follow-on buyers failed to show up.

Usually, this kind of bearish reversal is well…bearish. But Tuesday’s price action doesn’t count because the market discounted those early gains. As I’ve been saying for days, the only thing this market cares about is the Fed’s policy outlook and we won’t know what that is until Wednesday afternoon. While Tuesday’s fizzle would ordinarily be a big red flag, given what is really important to this market, the lack of follow-on buying was expected because a modestly improved inflation report is not what is driving this market.

That said, Tuesday’s big pop does show what kind of potential there is to the upside if we get the right cocktail of encouraging news Wednesday. So as high as it feels like we are given inflation and a potential economic slowdown, high is far more likely to get even higher than it is to peak and reverse.

I count myself as an optimist and am looking for prices to continue rallying from the October lows over the near term, but I’m not married to that outlook and will grab on whichever direction the market wants to go Wednesday afternoon.

Give the market a few minutes to process the news and be careful because the initial knee-jerk is often in the wrong direction, but after a handful of minutes, the market will no longer be able to hide its true intention and it will be a big move. Whether that is up or down is anyone’s guess, but as nimble traders, there is no need to guess. Follow the market’s lead and let the profits come to us.

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.