S&P 500 Sports Bearish ‘Hanging Man’ Candle

Although the plain S&P 500 chart is looking strong, there is one deceptive simple warning signal called the ‘hanging man.’ The hanging man is generally bearish, because it represents weakening demand for stocks.

The S&P 500 closed with a ‘hanging man candle.’ What is it and what does this mean?

As the imposing title implies, the hanging man title (from now on abbreviated as HMC) is bearish. It looks exactly the same as a ‘hammer’ candle. The only difference is that hammer candles appear in a down trend, HMCs appear in an up trend.

HMC looks like a dangling hanging man, hammer or umbrella (see S&P 500 chart below). It reflects a trading day where sellers initially pushed prices lower.

Despite buyers coming in to end the session higher, it is a sign of selling pressure (it doesn’t matter if the candle body is green or red).

Martin Pring’s book on technical analysis states that: “If a hanging man appears after a prolonged upmove, it should be treated with respect.”

As with any other candle formation, the hanging man is a warning sign that requires confirmation. In itself, it should not be treated as sell signal.

A ‘deep tissue’ look at the S&P 500 (NYSEArca: SPY) confirms the rudimentary hanging man warning signal. Since its technical break out on May 23 selling pressure has been building and buying power decreasing.

This weakening is occurring just as the S&P 500 (and particularly the Dow Jones, Nasdaq Composite and Russell 2000) approach key resistance levels.

Here’s a closer look at market internals not discussed by the financial media:

Stocks Approach Potential Bullish Springboard – Is There Enough Energy to Pop Higher?

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

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Technical Analysis – The Most Unique S&P Candle Stick Pattern Ever?

Candle formations are one of the more comical technical indicators, but comical doesn’t mean ineffective. Here are two takeaways from one of the most unique SPY candle formations ever.

Market analysts and market forecasters can’t be picky or biased. You can’t cherry pick data to support a bias. The tail doesn’t wag the dog and any forecast needs to be data driven.

A ton of data and indicators go into each Profit Radar Report update. There are different sentiment measures, various seasonalities and cycles and a wide variety of technical indicators.

Candle formations are one of the technical indicators I look at. I don’t follow them religiously, but they often add weight to the message conveyed by other indicators.

Anatomy of a Candle

Let’s review the anatomy of a candle before we look at a never before seen candle formation for the SPDR S&P 500 ETF (SPY).

The image below shows the main components of a candle: Open/close price, body, upper/lower shadow (also called wig) and the trading range (green or yellow, depending on up or down day).

The Only SPY Triple Outside Day

On Wednesday, the SPDR S&P 500 ETF or SPY opened below the low of the past three days and closed above the high of the past three days. This is called a triple outside day and has never happened before (see chart below).

That’s a curious factoid, but has it any directional implications? It just might. There have been seven double outside days. Each of them led to positive performance of the next couple of weeks.

Trading volume also picked up on Wednesday. Elevated volume increases the message of any candle formation, which suggests that this rally is not yet over.

A recent article here on iSPYETF.com (Nov. 19: Is it Time to Buy Apple Again?) referred to a reversal candle for AAPL at 506 and concluded that: “Prices are likely to move higher” (Apple traded as high as 595 since).

The November 18 Profit Radar Report spotted a similar reversal candle in combination with a bullish engulfing pattern (see image above) in the S&P 500 and stated that: “the immediate down trend is exhausted and stocks are ready to bounce.” The S&P is up as much as 80 points since. This bounce will continue and quite possible morph into a sizeable rally as long as prices remain above support.

Before we snub our noses at funny sounding candle formations, we should remember that they just called an 80-point (S&P 500) turn around.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.