The strength of candlesticks
Candlestick analysis is adorned by some and hated by others. I find candlestick analysis to be a great way to look into the price action of a stock, especially considering I prefer momentum indicators to most others. Looking back through historical data (think October 2007) I found what predicted perfectly the market top.
The Evening Star is one of the most prominent candlesticks because it is a sell indicator and often shows that a reversal is soon to come. During the last few months of 2007 the credit bubble just started bursting and the stock market party was ending. During that time we also so a very important candlestick formation at the top of the trend. Of course it was none other than the Evening Star. It predicted a reversal on the weekly chart that amounted to drop greater than 50% over the ensuing months.
The Evening star is the opposite of the Morning Star which is a bullish candlestick pattern. An evening star is made up of one long advancing bar, followed by a much smaller bar which can be negative or positive then a third negative bar which closes more than halfway through the white body. The middle candlestick should have a horizontal gap between the two other bars.
In the future I’ll be looking for a Morning Star to call for an end to the downtrend. Learning from these candlestick patterns and using them in the future wouldn’t be a bad idea. If anything this example shows us the value of candlestick analysis and the impending 50% drop in the NASDAQ index.
