$SPY forms a dark cloud cover pattern – what next ?

$SPY forms a dark cloud cover pattern

$SPY Dark Cloud Cover pattern stock chart

 

with $SPY forming the famous and rarest candle stick pattern called “Dark Cloud Cover” as on 30 Oct 2013 close,  , we looked how $SPY fares over the next 1/2/3/4/5/10/20 trading days ..

firstly what is Dark Cloud Cover Candle Stick Pattern 

as per investopedia 

Essentially, the large black candle is forming a “dark cloud” over the preceding bullish trend.

The dark cloud must have a closing price that is:
1) within the price range of the previous day, but
2) below the mid-point between open and closing prices of the previous day.

as per Stock Charts 

A bearish reversal pattern that continues the uptrend with a long white body. The next day opens at a new high then closes below the midpoint of the body of the first day.

as per Bulkowski

Look for two candles in an upward price trend. The first candle is a tall white one followed by a black candle with an opening price above the top of the white candle (an opening price above the prior high), but a close below the mid point of the white body.

so how did we code all the above information as a dark cloud cover pattern??

1) $SPY is in uptrend ( i.e current close and previous trading close is above 20-DMA)

2) Previous day was a tall white candle ( Prev day close > Prev day open)

for the tall candle definition , so we have taken the absolute of (Open-Close) for the last five trading days , including the current day , and if today’s candle size ( that is open-close) is highest in the five days , we market them as a large/tall candle

the below table should clear the doubts

Date Open Close Candle Size Abs Candle Size Is highest in five days
30-10-2013 177.38 176.29 -1.09 1.09 Yes
29-10-2013 176.63 177.17 0.54 0.54 Yes
28-10-2013 175.89 176.23 0.34 0.34 No
25-10-2013 175.51 175.95 0.44 0.44 No
24-10-2013 174.92 175.15 0.23 0.23 No
23-10-2013 174.81 174.57 -0.24 0.24 No
22-10-2013 174.91 175.41 0.5 0.5 No

3) current days open is higher the previous high ( current day open > prev day high)

4) current day is large black candle ( current day close < current day open and the body is largest in five days)

5) current days close is below the mid point of the white body ( i.e current close < average ( prev day open , prev day close)

we got the below 8 prior instances of $SPY dark cloud cover pattern , since 1995

Date Open High Low Close t+1 t+2 t+3 t+4 t+5 t+10 t+20
30-Oct-13 177.38 177.51 175.66 176.29 ?? ?? ?? ?? ?? ?? ??
25-Mar-13 154.44 154.7 152.8 153.39 0.8 0.8 1.11 0.71 1.21 1.16 1.83
23-Oct-09 101.04 101.11 99.15 99.56 -1.07 -1.54 -3.39 -1.32 -4.18 -0.87 1.26
09-Dec-03 88.24 88.26 87.13 87.29 -0.01 1.11 1.32 0.8 1.33 3.29 6.72
07-Nov-03 87.21 87.28 86.34 86.37 -0.42 -0.44 0.67 0.71 -0.15 -1.33 1.85
18-Nov-02 74.13 74.13 72.69 72.79 -0.12 2.09 4 3.26 3.32 2.64 0.41
19-Mar-99 102.12 102.37 100.1 100.1 0.2 -2.7 -2.14 -0.14 -0.87 2.1 -0.14
06-Jun-96 50.8 50.8 50.06 50.15 0 -0.32 -0.42 -0.6 -0.6 -1.54 -2.55
24-Apr-96 48.62 48.62 48.1 48.2 0.48 0.68 0.68 0.6 0.83 -0.33 4.92

t+1 : is the change % one trading later , and so on …

below the table with the trading odds for $SPY longs for the next 1/2/3/4/5/10/20 trading days

Exit # Wins % Wins Avg% Med% Avg Win % Avg Loss % Pay Off Max Loss %
t+1 8 3 37.5 -0.02 -0.01 0.49 -0.32 1.52 -1.07
t+2 8 4 50.0 -0.04 0.18 1.17 -1.25 0.94 -2.70
t+3 8 5 62.5 0.23 0.68 1.56 -1.98 0.78 -3.39
t+4 8 5 62.5 0.50 0.66 1.22 -0.69 1.77 -1.32
t+5 8 4 50.0 0.11 0.34 1.67 -1.45 1.15 -4.18
t+10 8 4 50.0 0.64 0.42 2.30 -1.02 2.26 -1.54
t+20 8 6 75.0 1.79 1.55 2.83 -1.35 2.11 -2.55

conclusion : with only 8 instances over 4742 trading days , it is bit tough to make out anything statistically significant conclusion 🙂

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