KEY TAKEAWAYS
- The capturing star sample signifies a short-term rotation from accumulation to distribution.
- The bearish engulfing sample suggests sellers have taken management, suggesting additional weak spot.
- The night star sample is a three-candle formation that illustrates an exhaustion of shopping for energy.
There isn’t a denying that the broad markets stay in a resilient uptrend off the April 2025 low. But when there’s one factor I’ve realized from a few years of analyzing charts, it is to stay vigilant throughout bullish phases. Though I am going to assume the uptrend continues to be intact, that does not imply I can cease on the lookout for indicators of potential weak spot!
With that in thoughts, listed below are three bearish candle patterns that usually pop up throughout bullish market phases. By on the lookout for these patterns within the shares and ETFs that you just personal, you’ll be able to hopefully get forward of any corrective strikes and take earnings earlier than it is too late!
The Capturing Star Sample
Should you see a protracted higher shadow, little to no decrease shadow, and the open and shut are shut collectively close to the underside of the day’s vary, then you will have recognized a capturing star candle sample. Should you’re acquainted with thehammer candle sample, then you’ll be able to consider this as a hammer candle however principally the whole lot is the wrong way up!
The chart of AT&T (T) has featured quite a few capturing star candles to this point in 2025. Simply earlier than the selloff in early April, there was a transparent capturing star candle after the March rally. Then in the course of the rally off the April low, a capturing star sample in early Could steered that the uptrend section was nearing an exhaustion level.
The Bearish Engulfing Sample
Some of the recognizable patterns within the candlestick library, the bearish engulfing samplerepresents a short-term rotation from accumulation to distribution. Principally, a big up candle is adopted by a big down candle, and the second day’s “actual physique” (the open-to-close vary) engulfs the vary of the primary day’s actual physique.
Have a look at the energy within the uptrend for Paramount International (PARA) going into early June. Then simply earlier than the 4th of July weekend, a bearish engulfing sample suggests a change of character because the bears take management. It is price noting that these candle patterns aren’t long-term indicators, however relatively point out short-term dynamics. So a bearish engulfing sample suggests weak spot for the subsequent one to 3 bars.
The Night Star Sample
Should you took the bearish engulfing sample, after which added one other small candle in the course of these two days, you then’d have an night star sample. Now most candlestick textbooks will inform you that the “star” day within the center ought to embody a spot, so there is no overlap between that day’s vary and the opposite two candles. In apply, I’ve discovered most individuals ignore this element and relatively search for patterns with sufficient similarities to this primary construction.
Going again to the AT&T chart we used earlier, we are able to see a night star sample on the finish of June. An enormous day is adopted quickly after by an enormous down day, with a small candle within the center. It is a nice instance of the place extra weak spot led the worth beneath the 50-day transferring common, serving to verify the bearish outlook as represented by the night star sample.
It is really easy to change into complacent throughout an prolonged bull market rally. Buyers that usually scan for bearish candle patterns have an edge, as they will anticipate potential turning factors earlier than the uptrend modifications in dramatic vogue to a brand new downtrend section!
RR#6,
Dave
PS- Able to improve your funding course of? Take a look at my free behavioral investing course!
David Keller, CMT
President and Chief Strategist
Sierra Alpha Analysis LLC
https://www.youtube.com/c/MarketMisbehavior
Disclaimer: This weblog is for instructional functions solely and shouldn’t be construed as monetary recommendation. The concepts and methods ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.
The writer doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the writer and don’t in any approach symbolize the views or opinions of every other particular person or entity.
About The Writer:
David is President and Chief Strategist at Sierra Alpha Analysis LLC, the place he helps energetic buyers make higher choices utilizing behavioral finance and technical evaluation. He’s a former President of the CMT Affiliation.
