Fall Back, Spring Ahead Into Election Day

This morning's sizable gap higher across the major indices is surely about politics...or is it?

To be sure, FBI Director Comey's letter yesterday added some fuel to the short squeeze fire overnight in the futures market, which is thus far carrying into this morning's session. 

However, as we noted for Members of Market Chess Subscription Services yesterday in the full video, before the FBI news broke, the S&P 500 Index printed an "inverted hammer" candlestick on Friday. After a prior downtrend, and only after a prior downtrend, the inverted hammer puts us on watch for a potential trend reversal.

The inverted hammer is termed as such because it literally looks like a hammer flipped on its head. The psychology behind the candle is that sellers are slowly losing their grip on the action due to the wild price swings, which we saw on Friday, for example. 

Upside confirmation is critical and necessary, of course. But, beyond that, the humility to view a successful inverted hammer as merely "a" bottom and not "the" bottom is also key. That may seem anti-climactic to action junkies who always want to make the big, bad, bold call and bet big. But over the long run that mindset does not have very much staying power.

Instead, we take it for what it is worth--At least some type of oversold bounce is now in progress, with 2120 on the S&P 500 Index (seen below on the daily timeframe along with the aforementioned inverted hammer right off the 200-day moving average) acting as the first big test for bulls and bears alike.