Episode 034 – Key Reversal
Rick: Welcome to Market Insights from Southwest Investments. I’m your host, Rick Zich. Joining me today is going to be Bart Schannep. He’s going to be talking about something maybe a little esoteric from what we normally talk about because this is maybe a little bit more technical.
We’re going to talk about a key reversal. You can see that I don’t always put the date on our webcast here, but I put it today because this marks a point that might be interesting for us to all keep in mind, May 18th 2020. We’re going to be talking about a key reversal. Here we go. Bart, why don’t you dig into some of the insights here and tell us about a key reversal.
Bart: Thank you, Rick. Yes, this is a little esoteric, but hang with me here. What I’m talking about today is, on Thursday May 14th, it appears that we had a nice key reversal. A key reversal is a reverse of a short-term trend. This is almost a little bit what a trader might use, but it gives hope to people who are watching the market on a day-to-day basis to see when a short-term trend might be coming to an end.
In this case, a bullish key reversal is when the price of the market or any index has been going down for a few days. On a key reversal day, the index goes down farther than the most recent lows, but during the day turns around and comes back up and closes at a higher level.
Now, you can certainly have that on the bearish side where a trend is on the rise. Each day the market seems to be going higher and higher. Then on a bearish key reversal day, you can see that the market goes up higher during the day, turns around and closes at a lower level. A lot of times, especially if these days have good volume, it is an indication that the short-term trend is reversing itself.
Well, last week we had a few down days in a row. Some of them were pretty good days driving the index, whether it’s the S&P or the Dow or the broader U.S. stock market index, down more than three percent, which has a lot of different people who watch the market nervous. Seeing on Thursday that we had a key reversal, it was hopeful Friday was going to be an up day. Well, it was a ho-hum day, but it did end up being up.
Now here it is today, May 18th, and we had the stronger day that’s following through. Key reversals are something to watch for. Again, it’s a short-term. We are not traders. I’m not recommending it as a trading strategy, but for those people who are watching the market on a day-to-day basis, whether it’s getting optimistic by the day or pessimistic by the day, when you see a key reversal, it generally means things are turning around.
Rick: Thanks, Bart. I think that’s important for many of our clients to know. Sometimes when we talk about things, we don’t necessarily talk about the specifics of us watching the markets in that sort of way. We have our set portfolios that we create for certain individuals, and we just let those portfolios run.
We are not in this as short-term traders, but it is important for us to watch these things and keep them in mind when we’re making decisions on portfolios. We’re, like I said, watching the market. Sometimes we can get discouraged when things are not going as we expect, but this is a very important point, this key reversal. Hopefully it’s an indication that can give us hope going into the future. Hopefully next week we’re going to see continued ups. That will probably take us into a different trading range.
Thanks so much for giving us that insight, Bart. I appreciate you showing up and enlightening us with a little bit of information about key reversals. Thank you for joining us on our webcast this week. We look forward to seeing you each and every week.
If you do have comments or anything else that you would like to say about the webcast, please feel free to fill out a ‘contact us’ form and send it in. We’ll be sure to read it and take a look to see if we can answer these questions right online. Thanks again for joining us. We look forward to seeing you next week. Thanks so much.