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KEY
TAKEAWAYS
- The capturing star sample signifies a short-term rotation from accumulation to distribution.
- The bearish engulfing sample suggests sellers have taken management, suggesting additional weak point.
- The night star sample is a three-candle formation that illustrates an exhaustion of shopping for energy.
There isn’t any denying that the broad markets stay in a resilient uptrend off the April 2025 low. But when there’s one factor I’ve discovered from a few years of analyzing charts, it is to stay vigilant throughout bullish phases. Despite the fact that I will assume the uptrend continues to be intact, that does not imply I can cease on the lookout for indicators of potential weak point!
With that in thoughts, let’s look at three bearish candle patterns that always pop up throughout bullish market phases. By on the lookout for these patterns within the shares and ETFs that you simply personal, you’ll be able to hopefully get forward of any corrective strikes and take income earlier than it is too late!
The Taking pictures Star Sample
In the event you see a protracted higher shadow, little to no decrease shadow, and the open and shut positioned shut collectively close to the underside of the day’s vary, then you could have recognized a capturing star candle sample. In the event you’re conversant in the hammer candle samplethen you’ll be able to consider this as a hammer candle, however with every part mainly the wrong way up!
The chart of AT&T (T) has featured quite a few capturing star candles up to now in 2025. Simply earlier than the selloff in early April, there was a transparent capturing star candle after the March rally. Then, throughout the rally off the April low, a capturing star sample in early Could urged that the uptrend part was nearing an exhaustion level.
The Bearish Engulfing Sample
One of the vital recognizable patterns within the candlestick library, the bearish engulfing sample represents a short-term rotation from accumulation to distribution. Mainly, a big up candle is adopted by a big down candle, and the second day’s “actual physique” (the open-to-close vary) engulfs the vary of the primary day’s actual physique.
Have a look at the energy within the uptrend for Paramount World (PARA) going into early June. Then, simply earlier than the 4th of July weekend, a bearish engulfing sample suggests a change of character because the bears take management. It is price noting that these candle patterns are usually not long-term indicators, however fairly point out short-term dynamics. So a bearish engulfing sample suggests weak point for the following one-to-three bars.
The Night Star Sample
In the event you took the bearish engulfing sample, after which added one other small candle in the midst of these two days, you’d have an night star sample. Now most candlestick textbooks will let you know that the “star” day within the center ought to embrace a spot, so there is not any overlap between that day’s vary and the opposite two candles. In follow, I’ve discovered most individuals ignore this element and fairly search for patterns with sufficient similarities to this primary construction.
Going again to the AT&T chart we used earlier, we are able to see a night star sample on the finish of June. An enormous day is adopted quickly after by an enormous down day, with a small candle within the center. It is a nice instance of the place extra weak point led the value beneath the 50-day shifting common, serving to verify the bearish outlook as represented by the night star sample.
It is really easy to change into complacent throughout an prolonged bull market rally. Buyers that usually scan for bearish candle patterns have an edge, as they’ll anticipate potential turning factors earlier than the uptrend modifications in dramatic style to a brand new downtrend part!
RR#6,
Dave
P.S. Able to improve your funding course of? Try my free behavioral investing course!
David Keller, CMT
President and Chief Strategist
Sierra Alpha Analysis LLC
https://www.youtube.com/c/MarketMisbehavior
Disclaimer: This weblog is for instructional functions solely and shouldn’t be construed as monetary recommendation. The concepts and methods ought to by no means be used with out first assessing your personal private and monetary state of affairs, or with out consulting a monetary skilled.
The creator doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the creator and don’t in any means characterize the views or opinions of every other particular person or entity.
David KellerCMT is President and Chief Strategist at Sierra Alpha Analysis LLC, the place he helps energetic buyers make higher selections utilizing behavioral finance and technical evaluation. Dave is a CNBC Contributor, and he recaps market exercise and interviews main consultants on his “Market Misbehavior” YouTube channel. A former President of the CMT Affiliation, Dave can be a member of the Technical Securities Analysts Affiliation San Francisco and the Worldwide Federation of Technical Analysts. He was previously a Managing Director of Analysis at Constancy Investments, the place he managed the famend Constancy Chart Room, and Chief Market Strategist at StockCharts, persevering with the work of legendary technical analyst John Murphy.
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