When an important piece of news like the US nonfarm payrolls comes in much better than expected, you would expect the market to rally strongly. The S&P 500 did rally strongly last Friday just after the open. The index made a new high at 1119 but something unusual occurred later in the session, see chart.
Note the sharp reversal after 3pm, the good news turned bearish. After making a new high prices dropped 2% by 7.30pm. This behaviour was warning of a potential trend reversal. We saw a similar example in September when the FOMC rate decision was bullish yet the market reversed.
After a long advance, good news is often used by investment managers to unload shares. If you have a long position in the S&P 500 it is always a good idea to close it on good news. On the chart, the early reversal on Friday 4 December was a bearish development. Holders of a long position in the S&P 500 who did not close it on the day had an opportunity to close it on Monday 7 December when prices bounced back.
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