Outside weeks tend not to be key reversals, unless they are

At Tricio we study charts as a way of gauging investor behaviour and sentiment. Chart analysis (and technical analysis as the broader field of study) is not a science, and can be more of an art at times. Many technical analysis tools and techniques are used by quantitative and model traders to determine trend and momentum for their models of course. Key patterns can also be used if they can be modelled (a colleague of mine when I worked on a model trading FX desk at a big US bank in London really liked bull and bear flags once I explained them to him).

One pattern that can be useful is the ‘outside week’ where a market price trend seems to hit a brick wall. In an uptrend a new high for the move is seen during the week, but by the end of the week the market price is lower than the close from the previous week. The reverse is seen in a downtrend. This pattern gets more importance placed on it by chartists if the ‘brick wall’ moment happens at new all-time highs (or lows). The reversal in sentiment may last for a few weeks, or it could be a lot more important.

We have written previous blogs where we noted that most of these patterns in stock indices and individual shares don’t prove to be a big top, but are temporary pullback signals. The chart below shows some of these in SPY (SPDR S&P 500 Trust ETF) since 2020 (red arrow pointing down). Pullbacks and then bounces are seen. The 2020 Covid crash, 2022 slump and this April’s big tumble stand out as more than just minor pullbacks of course.

And yes, last week was another ‘outside week’ at new highs, or a potential ‘key reversal week’.

We noted the importance of looking at support levels in our 17^th July 2025 blog (S&P 500 downside risk) on the view that you fix the roof while the sun is out. Tactical investors may want to consider hedging or other risk control measures.

Long-term investors? Review portfolios, look at risk profiles and tolerances, and try to focus on time in the market rather than timing the market. This doesn’t mean that investors have to be punched in the face time and time again if stocks do fall 20% or more. But it does suggest that over the long-term keeping exposure to equities has worked, and the opportunity cost of exiting the market completely has been high. By all means, trim exposures to levels that allow you to sleep at night, but keep your eye on the prize. 

Our Monthly Insights for August 2025 discusses aspects of this and looks at the FTSE 100, S&P 500 and TOPIX, along with the NASDAQ 100.

Contact us at info@tricio-advisors.com for further information.