A Halloween “Gravestone” Doji Formed On The S&P 500 Chart — It Suggests Further Downside

By | October 31, 2018

What happened in the last hour of trading today? Pretty much the opposite of what happened in the first hour of trading.

The S&P 500 index gapped up 22.97 points at the open on Wednesday. It continued higher in the first hour of the session. After a brief pullback around noon it rallied to a nominal high later in the afternoon.

Around 3:00 o’clock the broader market began to deteriorate, picking up speed into the close. The S&P finished the session much closer to its open than its high, and in the process formed a gravestone-like doji candle.

The gravestone doji is a candle with a narrow opening and closing range and a large upper shadow or wick. It represents early strength that is overcome by later selling pressure. Because this one is situated above a large upside gap, it is a particularly bearish candle.

Adding to the negativity is volume and the direction of money flow. The positive volume bar on the daily chart is misleading. It is defined that way on this chart because Wednesday’s close was simply higher than Tuesday’s close. A closer look at the 10 minute chart indicates that a good deal of the S&P daily volume was likely associated with distribution.

The takeaway from the formation of the gravestone doji candle on the S&P 500 index is that the sudden intraday reversal in investor sentiment could initiate further weakness, and it takes the index back down to fill the open gap.

(Gravestone doji candles also formed on the other major market index charts.)

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