Upside-Cap Two Crows - Candlestick Pattern

UPSIDE-CAP TWO CROWS

Exhibit 4.23. Upside-Gap Two Crows

An upside-gap two crows (what a mouthful!) is illustrated in Exhibit 4.23. It is very rare. The upside-gap refers to the gap between the real body of the small black real body and the real body preceding it. (The real body that precedes the first black candle is usually a long white one.) The two black candles are the "crows" in this pattern. They are analogous to black crows peering down ominously from a tree branch. Based on this por-tentous comparison, it is obviously a bearish pattern. An ideal upside-gap two crows has the second black real body opening above the first black real body's open. It then closes under the first black candle's close.

The rationale for the bearish aspect of this pattern is as follows: The market is in an uptrend and gaps higher on the open.

Exhibit 4.24. Deutsche Mark-Daily (Upside-Gap Two Crows)

Exhibit 4.25. Corning-Daily (Upside-Gap Two Crows)

The new highs fail to hold and the market forms a black candle. But the bulls can take some succor, at least, because the close on this black candle session still holds above the prior day's close. The third session paints a more bearish portrait with another new high and another failure to hold these highs into the close. More negative, however, is that this session closes under the prior day's close. If the market is so strong, why did the new highs fail to hold and why did the market close lower? Those are the questions that the bulls are probably nervously asking themselves. The answers might be that the market may not be so strong as they would like. If prices fail to regain high ground the next day (that is, the fourth session), then expect lower prices.

Exhibit 4.24 has an example of the upside-gap two crows. The very small falling gap after this pattern highlighted the bears had taken control. The rally on the week of February 20 stalled at this gap's resistance.

Exhibit 4.25 illustrates the significance of viewing a candle pattern to its immediate surroundings. Although there was an upside-gap two crows in mid July, this would not have been a signal to sell. This is because, as will be discussed in detail in Chapter 5, the stock gapped higher on July 7. A gap up is normally a bullish sign—whether with candles or bar charts. Thus, while the upside-gap two crows sends out a warning, I would view it as less bearish than would be the case in which there was no gap, such as in Exhibit 4.24.