Yesterday's Break and Reverse Pattern

July 7, 2016

July 2016

By Mish Schneider

Today’s report is a focused follow up to yesterday’s market reversal, because yesterday’s action was a very powerful pattern to watch out for in trading all the time!

The market’s reversal was exactly what I suggested in the last report when I said...

“Traders looking for bullish trades still have some very good options until the July Trend Trade confirms the negative trend. This is because markets often “break and reverse”.

In short the markets did take out the prior day low, but didn’t have a confirmed 30 min OR breakdown, and for the more experienced OR traders (anyone can do this), you’ll notice that while the SPY tried to break its 30 min. OR, the QQQ and IWM never came close. This divergence is a classic indication that a reversal will be substantial.

Therefore, as the SPY was testing its low of the day in the morning, with the other markets diverging, traders looking for long trades should have been looking for stocks or ETF that had not broken lower the day before (relative to the July OR).

Two of these ideas mentioned in the last report were AMZN and Biotechs. Both went on to have great days.

Next steps...

The same confirmation process is true on the upside – a close over the July OR high like we have in AMZN and IBB and XBI is only step 1. They need to continue with a confirmed 30 min OR breakout.

However, they are running ahead of the market so if the market continues higher, I’d expect the same for them.

I'm highlighting AMZN and Biotechs, but there are many others as well.

The market is not “bullish” yet. It’s only refused to go down so it still makes sense to focus on the areas of the market that are bearish or bullish (under or over their July O.R.) and trade them in their respective direction.

The next big level to look for in the markets is either a break of yesterday’s lows or a close over the July OR highs.