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Analysing DOW's Last Bullish Engulfing Pattern

8 January 2013

Introduction


Last Engulfing pattern is an interesting pattern occurring frequently in stocks and equity market.  Able to identify reversal of such pattern can let one reaps profit in stock markets.

What is Last Engulfing Pattern?

Last Engulfing pattern (LEP) occurs when engulfing pattern appears at the top of a rising trend or at the bottom of the falling trend.   The former is often called the Last Bullish Engulfing or Last Engulfing Top and  the latter,  the Last Bearish Engulfing or Last Engulfing Bottom.  Last Bullish Engulfing and Last Bearish Engulfing were spotted for Olam's stock recently

 

 

Has LEP Ocurred in DOW and Indexes?

LEPs are often spotted in DOW and other indexes.  There were altogether 34 Last Engulfing Top found in DOW since 2007.  The last was spotted just 2 days ago.
 
 

Are LEPs Reversal Patterns?

As can be seen from the above chart,  LEPs are not necessary reversal patterns.  TextBooks differ in views.  Some even testified that LEPs were continuation patterns 65% of the time.  However,  it has been proven that LEPs are reliable reversal patterns if it is confirmed by another candlestick.  There were altogether 6 LEPs having such confirmation:-
 
 
 
 
Example 1 :- a bullish engulfing top occurred on 31 Oct 2007 and confirmed by a down day.  DOW lost about 200 points or 8.5%
 
 

 
Example 2:-  a bullish engulfing top occurred on 19 May 2008 and confirmed by a down day. DOW lost about 5000 points or 38%
 

Example 3:   a bullish engulfing top occurred on 21 July 2011 and confirmed by a Bearish Harami. DOW lost about 2000 points or 16%



Any New LEP Spotted?

A LEP was spotted 2 days ago and confirmed by yesterday's bearish engulfing.   It would appear that DOW will be heading down and would not test or break the rising wedge that was shown in the attach.


Update 1: 10 Jan 2013 Last Bullish Engulfing Null

The LEP was null with Alcoa presenting better earning results after the close of 8 Jan  followed by report of 14% increase in the Chinese export on 9 Jan.  These 2 economical data added 142 point to DOW and created a bullish engulfing pattern which will test the major resistances at 13,600.  However,  the trading volume at the point of the break was not impressive.   In the event it fail to break through the resistance,  a double top will be formed.




Disclaimer: Please verify the information if they are to be used for trading purposes

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