In Western candlestick theory, the “Three White Soldiers” formation is considered to be a rare but extremely bullish pattern. As usual, when dealing with candlesticks location is significant. After a prior downtrend or a period of a consolidation, we are looking to see three consecutive long white (or green) candles that close at or near the highs of each day, and overlap the upper half of the prior candle. As an aside, if we see the Three White Soldiers after an extended uptrend, it can actually be a sign of a blow-off top.
The chart of small-cap health food and dairy producer Smart Balance, Inc. is something that I have discussed for over a year now. In May 2011, I used it as an example of the tedious bearish to bullish reversal process on a weekly timeframe, where patience was key even if we were fairly certain that the stock had actually made a bottom. Be sure to go back and check out that post.
Over the past few weeks, SMBL has broken out on very strong buying volume, giving us the Three White Soldiers look (not perfect marubozu candles, but prominent in size enough to qualify). When you combine the rare soldiers pattern with the prior grinding, multi-year basing out process, it adds to the bullish thesis that we are now looking at a fresh trend higher. In the short-term, SMBL is a bit too extended for a high quality entry. However, you can be sure that I am looking for a better spot to get involved in the coming weeks based on this pattern and context.
One caveat: SMBL needs to finish this week out near the highs and not see a huge fade. Otherwise, the integrity of the final “soldier” is called into question and so is the overall pattern, for that matter.
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I LOVE me some Smart Balance. Toast, oatmeal, grilled cheese, english muffins with jam, as a base for sauteing and used with oil to raise the smoking point…the list could go on forever.
Thanks for this one, I’ll be watching to see how it behaves once the buying slows.