Concealing Baby Swallow
The Concealing Baby Swallow is a strong 4 candle bullish reversal pattern occuring during a downtrend.
The first two days of the signal are two Black Marubozus and show the continuation of the downtrend.
The third day is a Reverse Hammer which indicates that the downtrend is slowing and may possibly indicate a reversal. Notice that it gapped down on the open, then traded up into the previous days trading range, finally closing near the open. This demonstrated buying strength by the Bulls.
The last day is another black Marubozo which opens above the previous days high and closes below the previous days close. It completely engulfs the whole trading range of the prior day forming an Engulfing Pattern. Although the trading ended at the trends low point, the magnitude of the downtrend had deteriorated significantly. Especially in an oversold market you may expect buying to show itself at these levels. This is a very rare signal but very strong for reversal indication.
Rules:
- The downward trend has been fairly consistent for a good period of time.
- The first two candlesticks are large Black Marubozus.
- The third day is a Reverse Hammer formation. It gaps down from the previous day’s close.
- The final day completely engulfs the third day, including the shadow.
Signal Strengtheners:
- The reliability of this pattern is very high, but a confirmation on the next day in the form of a white candlestick with a higher close or a gap-up is recommended.
General Analysis:
The bears have been in control as shown by a solid downtrend. Two Black Marubozu days appear reassuring the Bears.
The third day gaps down at its low confirming the trend, but trades up into the trading range of the previous day. This causes some doubts with the Bears as the Bulls start buying at the low prices. This buying is then negated by the Bears continuing to short, however, the bears have taken notice of the buying that occurred.
The next day shows us a significantly higher gap in the opening, again causing concern and doubts for the Bears. As it sells off for the rest of the day, the concerned shorts have time to cover their positions. The new closing low is not of the same magnitude of the previous down days of the trend. The Bulls have an ideal situation to take control.
