One Day Reversal Candlestick With Bearish Divergence

Chart 1

Major U.S. indices closed down on Tuesday August 8 2017 after S&P 500, Dow Jones Industrial Average, NYSE Composite and Wilshire 5000 Total Market Index made all time intra-day highs. They also closed in the lower half of the day’s range. This does constitute as one-day reversal candlestick pattern. However, whether this reversal can last longer is not that clear. The recent history suggests that it may not.

The SPDR S&P 500 ETF, SPY, made a bearish divergence (Chart 1). On August 8, the price made high but oscillator technical indicators, Stochastic, RSI and MACD did not.

The Decline Started Before War Game Talks

Chart 2

One factor cited for the market decline on Tuesday was the newest episode of the worsening rhetoric from politicians regarding North Korea’s nuclear program. However, the decline in the market started before that as the 5-minute chart shows (Chart 2) .

The high was made at 12:10 PM and was accompanied by bearish divergence as Stochastic made lower high. The first leg of decline lasted till 1:00 PM. The bounce faltered at 1:20 PM. The next leg down lasted till 1:30 PM and the resultant bounce failed by 1:45 PM. By 3:00 PM, SPY had already erased all the gains and was negative for the day after making all time high. The reversal was already in progress before the news release.