Following a strong three-wave countertrend upmove which began on February 8, 2010, the Dow Transports have put on display a nearly-perfect Candlestick Bearish Engulfing Pattern.
This example is easy to spot. After two strong white Candles (signifying “up” days) at a logical end to a long uptrend, the tall black Candle (signifying a “down” day) nearly completely engulfed the white bar which preceded it.
If history is any guide, this bearish two-bar pattern is the precursor of a strong selloff in the Transports Index.
Nothing comes close to the Candlesticks in revealing the underlying sentiment of the traders, as a group. In this example, we see that sentiment switched from Up to Down, just as if a light switch had been turned off.
Please maximize the chart so that you can see everything.
William Kurtz
April 20, 2010
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