Stocks Soared Yesterday, Posting A Key Upside Reversal

Plus 5 New Strong Buys for Today Stocks Soared Yesterday, Posting A Key Upside Reversal [Kevin Matras - EVP - Photo] Profit from the Pros By Kevin Matras Executive Vice President Stocks Soared Yesterday, Posting A Key Upside Reversal [Stocks Soared Yesterday, Posting A Key Upside Reversal]Image: Shutterstock Stocks soared yesterday, posting a powerful key upside reversal. After yesterday's hotter than expected Consumer Price Index (CPI) report (more on that in a bit), stocks gapped open lower, with the S&P falling by as much as -2.39% at its worst. Within the hour, stocks were already staging a sharp rebound and turning positive. And they added to their gains throughout the day, getting as high as 3.02% at its best, before closing with gains of 2.60%. We saw key reversals in all of the major indexes, which includes the Dow, the S&P (of course), the Nasdaq, and the small-cap Russell 2000 index. A key reversal is characterized by an open that's below the previous day's close, it then makes a new low, and the close must be above the previous day's high. Place a checkmark on all three. These are relatively rare patterns, and are usually considered reliable. That doesn't mean stocks have to go straight up now. There could always be some weakness. Or it could fail. But it's a promising pattern. And I will now be looking for follow-through buying. Yesterday's headline CPI report showed retail inflation up 0.4% m/m vs. views for 0.2%. On a y/y basis, it came in at 8.2%, which was below last month's 8.3%, but above the consensus for 8.1%. Core inflation (less food & energy) was up 0.6% m/m vs. views for 0.4%. On a y/y basis, it was up 6.6%, which was above last month's 6.3%, above the consensus for 6.5%, which was also above their summer highs of 6.5%. When the market turned around and began soaring, a friend texted me, asking what my take on it was. My immediate response was: Oversold. All of the bad news might just be priced into the market. Then after so many positive earnings reports came out in the morning, the constant selling seemed overdone. If we close above yesterday's high, this could be a key reversal. At the end of the day, that's what we got. And my initial response as to what happened, pretty much sums up my thinking. After yesterday, the Dow, S&P, and Russell 2000 are all up for the week with one more day to go. The Nasdaq is still in the red, but not by much. They only need another 3.25 points or 0.03% to get in the green for the week. We'll get another look at the economy today with Retail Sales, Import and Export Prices, Business Inventories, and Consumer Sentiment. Regardless of what happens today (although more green arrows sure would be nice), yesterday was a fantastic day. And could very well have signaled a trend change, at least temporarily. Best, [Kevin Matras - Signature] Kevin Matras Executive Vice President, Zacks Investment Research Sponsor [Buy These Stocks BEFORE They Report Earnings]( [earnings estimate revisions development timeline] Next week 322 companies are set to report earnings. What if you could know in advance which few would shock Wall Street by beating earnings expectations and pop in price? Now you can. Zacks' proprietary "ESP" formula predicts positive earnings surprises with unthinkable 81.22% accuracy. Investors following its picks have seen double-digit gains in a matter of days. What stocks is the system picking today? Find out before doors close to new investors at midnight Sunday, October 16. [See Surprise Stocks Now >>]( Most Popular Articles from Zacks.com [5 Large-Cap Stocks Likely to Beat on Q3 Earnings]( Each of these picks carries a positive Earnings ESP and is set to report third-quarter earnings within the next seven days. 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