Email of the day (1)
Comment of the Day

December 06 2011

Commentary by Eoin Treacy

Email of the day (1)

on island reversals:
"Could you please explain what an island reversal is and how it must be analyzed? Thank you for your help."

Eoin Treacy's view Thank you for this question which others may also find of interest. I mentioned an upside island reversal yesterday, referring to the Nasdaq-100's swift turn around over the last month. An island reversal refers to an exhaustion gap on the way down and a recovery gap on the way up.

In our terminology a gap is a dynamic move that occurs outside of market hours. The Nasdaq dropped abruptly and has rallied even more abruptly. This type of action is reflective of a high degree of volatility, particularly in a large cap market such as the Nasdaq. Such patterns are normally seen in thin markets where gaps are prevalent and in such cases are less reliable.

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