To most investors, Friday showed selling in the market indexes. To the candlestick investor Friday showed a strong candlestick reversal signal. The indexes formed bearish engulfing signals. The bearish engulfing signals were even more compelling sell signals in that they created bearish left/right combos. A left/right combo is a Doji followed by a bearish engulfing signal. That signal is considered one of the top rank reversal signals. And even more compelling that a reversal had occurred was the fact that the indexes created a strong sell signal and closed below the T line. With this all occurring in the overbought conditions, it provided the opportunity to close out long positions that were not maintaining good bullish chart patterns. Did the strong sell signal closing below the T line indicate the magnitude of the selling in Monday’s trading? Definitely not, but what you did do was indicate it was time to be out of long positions with an extremely high degree of probability there would be further selling in today’s trading. It can be visually evaluated that there have been candlestick sell signals during the uptrend of the past two months. However, the sell signals were not confirmed with any closes below the T line. Without that confirmation, maintaining long positions that had been using the T line as a support could be maintained.
Positions that were not closed out and that had traded well below the T line today can be much better evaluated based upon the type of candlestick formation they produced in today’s trading.WDC formed a bearish left/right combo on Friday but it did not close below the T line. Today’s gapped down in price produced a Doji, the lack of any strength after the open. This would have warranted closing out the position if held to the end of the day. Positions such as TWLO, IRBT, and UBER produced evidence the bulls were still in control, opening much lower but closing well above their open. These positions create a much more clear trading strategy based upon how price is open tomorrow. Knowing what should occur after Belthold signals allows investors to make much better assessment on whether to close or continue to hold the positions based upon how the prices open tomorrow. The major advantage of candlestick analysis is knowing what to expect after witnessing candlestick signals and patterns.
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Good Investing,
The Candlestick Forum Team
