Dead cat bounce or a key reversal?

This marks the worst start to a quarter since 2008 financial crisis as recession fears and geopolitical concerns again dominate headline news. So, is today (10/3/19) market turnaround a key reversal day and the start of the next rally or is this a dead cat bounce?

After the market closed, we poured through several hundred market indexes both in the U.S. and overseas as well as many popular ETFs, sectors and industries. Today's market action is interesting as several positive outside reversal days were recorded on the daily charts.

An outside reversal is a technical price pattern that suggests a potential change in trend. The two-day pattern occurs when a security's high and low prices for the day (10/3/19) exceed the high and low of the previous day's trading session (10/2/19). A positive outside day is observed when the closing price for a security in question ends at or near the high for the trading day. A negative outside day is the direct opposite. It is when the security closes at or near the low for the day.

What does this all mean? Well, it is possible that the strong selling over the past few days have led to a short-term oversold condition prompting a technical rally as selling subsided into the downturn. It is also possible that professional traders and computer/quant/algo driven funds were forced to cover their defensive hedges as the market turned positive.

The daily reversal patterns today were concentrated in a few indexes, ETFs, and sector that experienced the strongest selling such as the OTC markets (i.e., NASDAQ Composite and NDX 100 Index), Technology related sectors (SOX, XSW, IGV, ROBO, and SKYY), and Growth style indexes (IJK, IJT, and IWP). Since the positive outside days did not occur across broader based indexes and popular averages including Dow Jones Industrial Average, SPX, OEX, and NYSE Composite we suspect that time is needed to establish firmer and concrete bottoms before the next sustainable broad market rally. Attached below are some of indexes, sectors, ETFs that have recorded positive outside days.