Around 2:20pm Eastern, all four of our Thomson feed machines suddenly stopped responding.  We quickly moved much of our data traffic over to our IDC data feed however some Canadian stocks and many indexes could not be quickly moved over.

Engineers at Thomson restarted those feed machines and they appear to be working correctly now (2:45pm).  We are continuing to monitor things closely however to see if the problem returns.  We are not convinced that we are out of the woods yet.  The problem may return.

We will be working with Thomson (again, sigh) to try an understand why all four machines died at the same time – something that should not have happened.

An island reversal is short-term reversal pattern that forms with two overlapping gaps. Traders with positions taken between the two gaps are stuck with losing positions. A bullish island reversal forms with a gap down, short consolidation and gap up. A bearish island reversal forms with a gap up, short consolidation and gap down. Technically, the gaps should overlap to create an empty space above or below the island. The chart below shows the Coal ETF (KOL) with a bullish island reversal this week. Notice that the gap down and the gap up created a space above the island without any trades.

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The next chart shows Carnival Corp (CCL) with a bearish island reversal in early August. The stock gapped to 35, consolidated for six days and then gapped below 34.5. This created a small gap overlap without any trades. Buyers on the island were trapped with losses after this gap.

Click this image for a live chart

While overlapping gaps create the "ideal" island reversal, a little flexibility is sometimes required for identification. Sometimes the gaps do not create a clear space above or below the consolidation, but there is clearly some sort of reversal at work. The chart below shows Apple Computer (AAPL) with a gap down, consolidation and gap up. Technically, the gaps do not overlap because the consolidation high exceeded the low of the gap down. Nevertheless, there is clearly a reversal in the works with this week's gap.

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It has been quite a roller coaster the last two months. The S&P 500 (red) surged in July, fell sharply in August and surged over the last few days. While the S&P 500 went on its roller coaster ride, the Shanghai Composite (black) surged in July and consolidated in August. After relative weakness at the beginning of summer, China is showing relative strength in late summer.

Click this image for a live chart