The Piercing Pattern

Posted by barkand on October 5, 2011 under Candlestick charts | Be the First to Comment

The first two days of this week created very similar chart patterns for most U.S. stocks. Starting from a weak position, they were down badly on Monday. Down again most of yesterday. Then an orgasmic reversal later in the day.

Some stocks rebounded better than others. We can look at variations of a “piercing pattern” to separate the men from the boys. Let’s examine three stocks which look similar but have one important difference in yesterday’s price movements.

First up is E-Trade (ETFC). Yesterday, prices were plummeting as part of an ongoing downtrend. The big reversal brought it back all the way to Monday’s close (and also all the way back to the lower Bollinger band).  In candlestick terms, this is an “in-neck” pattern.

Next is US Steel (X). The chart looks nearly identical to ETFC over the last three months. But notice what has happened this week. Prices not only reached Monday’s low but thrusted well into the previous candlestick’s real body. This is a sign that US Steel has a better probability for a rebound than does E-Trade.

Then there is Dupont (DD). Does that chart look familiar? But look at what happened yesterday. Shares rallied so strongly that Monday’s candlestick was completely engulfed by yesterday’s price swing. Notice also that, like US Steel, the current price is now well above the lower Bollinger band. Of the three, DD looks like the one which will fare best in the immediate future.

What we have here are really three shades of grey. In the end, all three will be strongly influenced by the mood and general direction of the market. But of these stocks, we expect DD to be the strongest, followed by X, and then ETFC will be the weakest.