Piggy-backing off our CPI article above, let’s take a look at why many technical analysts believe today’s reversal could be the start of a potential bear market rally.
It all comes down to the “Bullish Engulfing” candle pattern that today’s price action formed. This pattern forms when prices open below the previous day’s low price and close above the previous day’s high price. So, today’s candle fully “engulfs” yesterday’s. 🕯️
Let’s consider how this type of candle forms and what that means psychologically. First, bears push prices down to fresh lows, and then bulls battle back to close higher than they did the previous day. This shows that demand strongly overtook supply. Or simply that buyers were far more aggressive than sellers.
Now, let’s look at the Russell 2000 ETF $IWM to see it in practice. As you can see, the market opened below where it closed yesterday and closed today well above yesterday’s high. And not only that, but it “engulfed” the previous three days worth of trading, which technical analysts say increases its significance. 👍
Stocktwits user Evan Medeiros was one of the traders pointing to today’s development as a potential turning point. He also noted that three of the four major U.S. indices are back above their June lows after today’s rally. 🧐
As we said in the CPI article (and Evan noted above), one day doesn’t make a trend. However, given the context surrounding this pattern’s formation, many people will be watching to see how it develops over the coming days. 👀
So what will they be watching for? Technical analysts say that further upside in the days after this candle forms is confirmation of the reversal. However, if prices close below the low of today’s candle, then the reversal pattern is invalidated.
While waiting for a resolution, be sure to check out what Evan and the rest of our community are sharing.