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DARK CLOUDS REVISITED

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In my previous column, I featured the Information Technology SPDR (XLK) with a pair of Dark Cloud Cover reversal patterns. Greg Morris, who wrote Candlestick Charting Explained, informed me that the Dark Cloud Cover pattern is one of the few that uses the previous days high as part of its criteria. I was erroneously using the previous days close. The Dark Cloud Cover forms when the open is above the previous days HIGH and the close is below the mid point of the body of the previous day.



In early January, the XLK open was above the previous days close, but below the prior high. In mid March, the open was equal to the previous days high. Close, but still no cigar. Using the high for the previous day makes this pattern an even more dramatic reversal. It takes a bigger surge to open above the previous days high and a bigger failure to then close below the mid point of the previous days body. This price action shows that buying pressure continued with a strong open, but the bears took control and forced a relatively weak close.



Interest rate sensitive stocks had a rough week and I noticed that Public Storage (PSA) formed a Dark Cloud Cover on Thursday. This stock is part of the REIT group and has enjoyed a nice run up over the last few months. Things could be about to change as the stock declined on above average volume in mid March and then formed a Dark Cloud on above average volume Thursday. A move below 78 would break support from the prior low and confirm the Dark Cloud Cover pattern. My downside target would then be to the support zone around 70.


Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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