A Shooting Star Forecasts Dollar Weakness
Althoughthe dollar traded fractionally lower on the day, it is the highs achieved todayalong with the inability to sustain those new price highs that created a singleday candlestick known as a shooting star.
Thiscandlestick is a member of the umbrellagroup of patterns, which contain the hammer, hangman, inverted hammer, andshooting star. The hammer and hangman, as well as the shooting star andinverted hammer, are identical incomposition. They are differentiated by whetheror not they occur after a defineduptrend or defined downtrend.
A shooting star isinterpreted as a type of reversal pattern presaging a falling price.
Ashooting star and hangman occur after the market has been in a defined uptrend.If these candle types are identified after a correction, they are calledan inverted hammer and a hangman.
Thereare two primary factors needed to create this candlestick type. First, this candlestick must contain a tiny real body (differential between the openand closing price). Secondly, there needsto be a considerable distance between thedaily high and the open and closing range,with the tail at least three times the length of the real body.
Accordingto Investopedia, “Shooting starsindicate potential price tops and reversals. The shooting star candle is mosteffective when it forms after a series ofat least three or more consecutive rising candles with higher highs. As theprice rises, buyers get impatient waiting for a pullback,and leapfrog over one another to purchaseshares. Eventually, the buying frenzy hits a peak as the last of the immediatebuyers jump into the stock (or any financial instrument) in a greed-drivenpanic to mark the highest high of the preceding series of candles.”
It is precisely this Japanesecandlestick type that resulted from today’s trading activity. It meets thecriteria in that it occurred after a defined and sustained uptrend. The factthat this candle was found at the 50%retracement is also significant. As such we could very well see the dollar’svalue begin to decline over the next couple of weeks.
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Wishingyou as always, good trading,
By Gary WagnerContributing tokitco.com
Follow @garyswagner
gary@thegoldforecast.comwww.thegoldforecast.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.