Market School Rules Definition:
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A downside reversal (DR) is when the market is at a 13-week high and we get a big spread between the highs and lows of the day and we finish at the bottom of the range.
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A “Buyback” occurs if you retake the highs of the DR day within 2 trading days.
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Of the 61 DRs, only 11 were buybacks.
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All 11 buybacks occurred during a power trend.
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You should buy back what you sold.
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Usually a DR means the market will go down more, when we get a “buyback” scenario, it is telling you the market is much stronger than you thought.
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You are at highs and the DR says you might be running out of gas, but the Buyback says not yet.
Here is the transcript from the Friday Video of 4/24/26 (note that on 4/22/26 we entered a Power Trend).
Additional notes from 4/24/26 Friday Video (Webby)…
Webby: The downside reversal that we had on what day was that Tuesday? ⁓ That’s significant because it’s one of the rules of the IBD’s market school rules. It’s a sell signal when you have a downside reversal, but there’s also a buy signal along with that. If you can get a close above the high of the downside reversal within two trading days, it’s a buy signal. So it negates the sell signal.
Most downside reversals will be followed by at least two days of weakness. It’s not a downside reversal. It’s just another day… it’s not a market topping thing. Lots of market tops do have downside reversals around them, but it’s not saying the market is falling apart. It’s just saying, okay, the markets run out of gas and it should pull back in typically two to two and a half days is kind of your base case.
It can be less, and can be a lot longer than that too. That didn’t happen. Immediately the next day we’re back up, closing at the highs. Then yesterday midday that there was some news, Iranian news that was happening and from what I gathered, it turned out to be inaccurate. But still when we’re selling off, being in that position, let’s go to the inter day, because I think it kind of tells you a lot. Let’s just go to 30 minutes maybe.