One of the most watched for candlestick formations is the morningstar pattern. It is a three-day series of candlesticks that suggest the end of a down trend and a reversal to the upside. The first component of the pattern is a large dark down-day candle with the close near the low of the day. It is followed by a doji-like candle. A doji is a candle with a very narrow opening and closing range, meaning that the close is at the same level as the open. The morningstar is completed by a large up-day candle with the close near the high of the session.
The implication of the three-day pattern is represented visually by the price action. It is simple: bearishness, followed by indecision in the doji, and finally bullishness. A clear visual of the transition in investor sentiment.
Friday’s open looks a little weak so remember all technical patterns require confirmation and a close below the doji low negates the bullishness of the pattern. That said, here are five morningstar set-ups:
SPC Commerce (SPSC) is a cloud-based supply chain and logistics firm. The stock price has been making a series of higher highs and higher lows since September last year. It has established a strong uptrend line above the rising 50 day moving average. Chaikin money flow is in positive territory and the relative strength index is above its center line. These readings reflect positive price and money flow momentum. There is another bullish indication that at first glance is not as evident.
During SPSC’s four month run the highs it made in September, October, December, and January all follow 29 day cycles. That is, approximately every 29 trading days a high in the cycle of higher highs was established marking the end of one cycle and the beginning of another cycle. The most recent low was made on January 14 last week and a continuation of the 29 day cycle suggests that the next high will be made on February 22.
There is an old technical saw that says something along the lines that once a cycle pattern is recognized, it fails. That remains to be seen but ultimately the trend continues or ends based upon the integrity of the simple red uptrend line. If it continues to hold the trend is intact and if it is broken the trend is considered broken. The bottom line at this point in price and time, however, is that SPSC is in a primary uptrend and the technical picture is bullish.
(Picture courtesy of: https://valuestockguide.com/)