This blog's title may sound strange to you. Before get into the subject, I would like you to read today's Gregory Mannarino's blog : "Are Stocks About To Pop or Drop? (Chart Pattern) What do you think?"
Here is the chart Greg posted on his blog:
As you can see, this is a daily chart of the S&P 500 index. Just by glancing it, the very first thing came to my mind was "Falling Three Method". Below is the definition of Falling Three Method from INVESTOPEDIA:
A bearish candlestick pattern that is used to predict the continuation of the current downtrend. This pattern is formed when the candlesticks meet the following characteristics:
1. The first candle in the pattern is a long red candlestick within a defined downtrend.
2. A series of ascending small-bodied candlesticks that trade within the range of the first candlestick.
3. A long red candlestick creates a new low, which suggests that the sellers are back in control of the direction.
Below is how completed pattern looks like:
I know you would say my interpretation is wrong because the S&P 500 is not currently in the downtrend. But, I think you can agree that the current trend of the S&P 500 is trendless sideways, and chart reading is not an exact science.
The S&P 500 already completed #1, and it is now at #2. I know today's candlestick is already outside of the first candle, but we are seeing a series of ascending small-bodied candlesticks. Tomorrow is a very important day. If we see a long down candlestick which erases all gains created by a series of ascending small-bodied candlesticks, this may signal the beginning of a correction. I know this is not exactly a falling three method, but we are seeing something very similar to it is forming.