Update on Bullish Engulfing Candles

As I wrote in this post last week:

In Japanese candlestick theory, the bullish engulfing candle is most viable as a reversal signal after a prior established downtrend. The candle usually follows a small-bodied day, where the bears appear to be close to running out of steam after clearly controlling the price action for quite some time on the given chart’s timeframe. The next candle then “engulfs” that prior candle, with a lower low but also a higher high, and a strong close above the high of the small candle.

As with all reversal candlestick patterns, confirmation is required. Moreover, a bullish engulfing candle on strong buy volume adds credibility to the reversal thesis, since it shows that there may have been both a selling climax with the brief lower low, followed by strong hands coming in to buy the bargain. Note that the bullish engulfing candle amounts to little more than a tease if the lows are quickly breached and the chart sinks further. If confirmed within a week or so via further upside, the idea is that you have at least a tradable bottom in place, with relatively easy stop-loss reference points.

Since then, HomeAway has confirmed the bullish engulfing candlestick with a nice upside move. The issue now becomes making an important higher low to form a more durable move higher.

Another chart that caught my eye from Wednesday is Weight Watchers. We know that the firm is a popular New Years resolution play, so perhaps yesterday’s bullish engulfing candle on high volume is the start of a tradable move. As with HomeAway, watch for upside conformation and note the defined stop-loss point in the even the pattern fails.

____________________________

____________________________

If you enjoy the content at iBankCoin, please follow us on Twitter