By: Tom Gentile
on December 13th, 2022
Today the markets saw a huge gap up in price. A gap up is when a security closed at one price and the next day opens for trade at a higher price. It’s just today’s gap up was a pretty large one.
The Cause for the Gap Up
This morning the Consumer Price Index data was released. What it showed was consumer prices, (what we as consumers pay for goods) for November rose less than expected. Even though the report came in up 0.1% from the previous month and up 7.1% from a year ago, it was less than expected. The forecast was for it to be up 0.3% from the prior month and up 7.3% from a year ago.
This report gave investors the impression that the rampant inflation taking place this year is slowing down. The thinking is if inflation cools off this will boost the markets and take pressure off the Fed, so they don’t have to be as aggressive with their rate hikes.
This gap up and higher prices were short lived. Short lived to not even lasting a full day.
The SPY gapped up, but pretty much reversed right away only to end up closing much lower on the day.
Bearish Reversal Day
Bearish reversal days happen when a security opens up at one price and then closes lower on the day. If you use candlestick charts you most likely see a red candle body. If you use Open, High, Low, Close charts (OHLC) you will see a hash mark on the right side of the bar lower than the hash mark to the left of the bar.
What this suggests is there was a lack of conviction for the stock at the higher price.
It can reverse due to news that came out about the security/stock or the overall markets or a combination of both of those that counters the reason for the gap up in the first place.
Possible Cause for the Bearish Reversal Day
The optimism and bullish price action to start the day may have been hit with the realization that even though the numbers suggest inflation may be scaling back, the Fed is still likely to raise interest rates tomorrow.
Not only will we see an interest rate hike, but it also seems expectations are for a 50-basis point hike which is smaller than the previous hikes, the tone and forward-looking commentary from Fed Chair Powell is going to just as, if not, more important and the selling could have been some profit taking ahead of that announcement.
App: Toms Option Tools
Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.
Other times I will have other charts may work to amplify my educational points.
Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.
Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.
Stock and options trading has large potential rewards, but also large potential risk.
You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.
This is neither an offer to buy/sell/ or recommend a particular stock or option.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.
No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.
Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.
This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.
You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any I, investment decision made, or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.
Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.
Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.
A full disclaimer can be found here: http://www.tomgentile.com/legal_disclaimers.html.