top of page
Search

Bullish and Bearish Engulfing Patterns

Updated: Jun 21, 2023

The second half is likely to be as volatile as the first half. The ensuing market environment favors stock pickers. Because the internal correlation between stocks is low, this creates an opportunity for disciplined and opportunistic traders that pick the correct stocks will outperform the benchmark index. The long/short funds and aggressive traders can excel in this market environment as they can take advantage of the trading opportunities on both sides of the stock market.

One of the popular reversal patterns is the bullish and bearish engulfing patterns. Positive and negative outside days on bar charts tend to be similar to engulfing candles on candlestick charting. The bullish engulfing candlestick patterns typically form after an extended downtrend. On the other hand, bearish engulfing patterns occur most often during an extended uptrend.

The bullish reversal signals an exhaustion phase in the uptrend where sellers take trading profits and buyers begin to return. The pattern is typically composed of two candles. The first candle is black or red, and the second is white or green. The white candle must be taller than the first black candle. The ability to engulf it or overlap the black candle's body signals a bullish reversal. The larger the second candle, the stronger the reversal signal.

The bearish engulfing pattern follows the same concept as the bullish pattern. The only difference is the formation typically occurs at or near the top of an uptrend. The first candle is bullish (white or green), which hints at the continuation of the uptrend. The second candle is bearish (black or red), engulfing the first candle by trading above and below the previous candle. The second bearish candle must be larger than the first bullish candle.

Studies show bullish engulfing pattern has a success rate of 63% of the time. Bearish engulfing pattern is successful 79% of the time. Interestingly, the higher successful rate favors the aggressive trading-oriented short sellers because when markets decline, they drop faster than they rise.

As summer arrives and the temperature rises, this may not be your typical summer doldrums of dull and sluggish trading. Rather individual and professional investors may be actively playing on both sides of the market. Enclosed are stocks and ETFs that meet the criteria of daily bullish and bearish engulfing patterns. Daily screens for potential reversal formations can help traders and investors better identify stocks to buy and sell into the summer months.

Bullish Engulfing Patterns (26):

COIN, EWJ, GILD, HUM, IREN, IT, LLY, LW, MCD, MDLZ, MRK, NGG, NOMD, NTNX, ORLY, PEP, QGEN, REGN, SBUX, SCO, SNN, TAK, TH, VRTX, WM, and YUM

Bearish Engulfing Patterns (31):


ASH, BE, BJ, BNO, DBO, DOW, EHAB, EMN, GOEV, GRWG, HDB, HUN, HYZN, IFF, LAUR, LESL, LTCH, MDRX, MRVI, MVST, NRGV, NWL, OGN, OSW, OTLK, SHC, UCO, USO, VIAV, VRAY, and WU.


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

61 views0 comments

Recent Posts

See All

Closing of the Newsletter

Dear clients, After four rewarding years, the time has come for me to close the Lee Technical Strategy Newsletter, effective today. I want to take this opportunity to let you know what a great honor a

Technical Review of the Top 25 NDX 100 Index Stocks

NASDAQ 100 Index (NDX) – NDX is a modified market capitalization-weighted index comprising 100 of the largest non-financial companies on the NASDAQ Composite Index (COMPQ). NDX is heavily weighted tow

Comments


bottom of page