Equity indexes’ wild ride

Good day! The roller coaster ride that has been the market intraday in recent weeks continued on Tuesday. The index futures were favoring weakness and further downside into the end of the day on Monday and this continued to follow through into the early morning hours on Tuesday. A final wave of premarket selling took place going into 4:00 a.m. ET. The breakdown into the 4:00 a.m. ET lows was the third one that established itself with a "slightly lower low" on the five minute time frame. This action shifted the momentum of the selloff and the index futures triggered a Momentum Reversal™ off that low. This low also corresponded to the 10 day moving average, which would hit once again following the opening bell.

Dow Jones Industrial Average (Figure 1)

Momentum Reversals™ represent a change in the sentiment of market participants. They are often followed by strong upside moves, although the extent of the move is dependent upon the overall pace of the Momentum Reversal™, as well as trend placement. In this case, the follow through was solid and took the index futures back into price resistance at the first afterhours base in the Nasdaq and some prior pivot levels in the other major indices. These levels hit going into 9:00 a.m. ET.

The market was not subject to the whims of economic data on Tuesday morning and held purely to the technicals. The futures turned slightly off 9:00 a.m. ET highs and then based. This created a pattern that I call the Avalanche™ as a result of its visual formation and the odds for rapid downside once it triggers, which it did coming out of the opening bell Tuesday morning.

The downside out of the opening bell did not actually last for long. By the time the 9:45 ET correction period hit, the indices were already showing downside extension and by 9:50 ET the indices were turning higher. The reversal was very rapid given the pace of the overall selloff, but the indices had strong support at the 15 minute 200 period moving averages in the indices. This support zone held and the indices bounced quickly to new intraday highs.

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