Breaking news development… The Dow Jones Industrial Average as well as the SP500 Index are currently as the time of this posting showing another potential bearish implication candlestick formation.
The formation is the bearish hanging man candlestick. This candlestick looks like a bullish hammer, has a small body shape and a tail that is at least two times the size of the body. In addition, the upper shadow is preferably minimal or non existent.
The Dow Jones Industrial Average is the index that is currently showing the best likeness of this potentially bearish candlestick. The SP500 also currently has one somewhat less ideal than the Dow, and the other indices do not have one at all.
This candlestick can at first glance look quite bullish but the issue is where it appears in the trend. If it appears after a severe decline then it is a bullish hammer, but if it appears after a straight up move like we recently had then the bias is bearish interpretation.
It is significant in my opinion that this potentially bearish hanging man candlestick is forming 4 days after we had a gravestone doji candlestick on the DJIA and a couple other indices.
The hanging man candlestick is useless without confirmation. And I should not that the final formation of this candlestick is not done yet. It may change enough by the close today to make it invalid. But at least for now it is keeping the proper shape.
What about Bearish Confirmation ?
Bearish confirmation of this candlestick would occur if and only if tomorrow, the last trading day of this week we see either:
- A gap down in the SP500 (The DJIA does not gap) below today’s real body or below today’s entire candlestick.
- A bearish black body closing candlestick that closes below today’s real body or engulfs today’s body or entire candlestick.
Hanging man candlesticks do not guarantee a huge change in trend. A huge change in trend could be occurring, however the proper interpretation is that they imply either a change in trend or just a pause in the current trend.
If I am correct, and the hanging man candlestick is confirmed tomorrow, April 1st, 2010, then it would be very very important for the Dow Jones Industrial Average to hold 10,730 (and the corresponding levels on the SP500).
If it does not hold that level then we could be dealing with a dangerous 2B sell signal similar to the 2007 stock market top.
Everything I am looking at right now in terms of candlesticks, astro, and a few other factors says we are approaching a violent change in trend.
The jobs report is out on Friday but the market will be closed all day. One would think with all the census jobs we will get a blowout number and the bulls will be gapping the market up 400 points out of this range?
I would be the last one to say that is impossible, but right now in terms of the probable, the market is speaking to me and it is telling me possible violent downside action is coming and the bulls will be tested and put the challenge of trying to defend the 10730 level on the Dow Jones Industrial Average and corresponding levels on the other indices.
A gap up and close up above the hanging man candlestick would invalidate this bearish signal and simply say that the only signal it was giving was a pause signal, not a change in trend.
Dear TOM,
I think you may prove right. As I am writing this, I am seeing first weakness in market (not seen in last 40 days).
We can make killing if it happens.
Cheers,
Shrihas
Thanks for your comment. Well I am not sure about a killing. But I am growing more and more confident that we are on the cusp of trend change. It never seems obvious at first and it is always hard to spot because it barely moves in either direction. But for now and as I was talking about in my previous 2007 2010 comparison chart posting , it would seem that if we do get a corrective leg down starting either tomorrow or Monday of next week it will eventually pause near the 50 day moving average support and then take another shot back upwards. Will be interesting to see how this all shakes out. -T
Yes Tom,
if it unfolds it will follow like 2007. Because sentiment reading is same like 2007. Only problem which I mentioned in my earlier message is DJTA (Transportation) is not diverging like 2007. At the moment, all fund managers are optimist. If it happens it will be exact replay of 2007.
Once it falls, fund managers will not believe in fall and they will start buying and another selling will emerge.
Unfortunately, if DOW opens 400 gap higher on Monday, I will have lot to lose as I am carrying forward my position whatever happens Thursday.