Thursday, November 7, 2013

How to Trade Bearish Engulfing Patterns - DIA Bearish Engulfing Pattern 11-7-13

How to Trade Bearish Engulfing Patterns

This stock market video update looks at the DIA etf of the Dow Jones Industrial Average.  Today formed a bearish engulfing pattern in the stock indexes which is a top reversal candlestick pattern in Japanese candlestick analysis.  Given that the market are in a short term overbought condition on technical indicators and there is a relatively large potential bearish divergence in the weekly MACD indicator on the stock indexes, this reversal could be significant.  Additionally, DIA only just poked above its September high on the charts and now has immediately reversed.  Failed breakouts are a general rule at major market highs, so we should be wary of that here.

In order to give you a more comprehensive picture of the markets I also discuss bearish divergences and non confirmations in the VIX and total put/call ratio which further suggest that stocks are at risk of some continued pullback here.  The October low is key support in my view.  A break of that low may mark a significant high in stocks.

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