Today we are looking at the bearish counterpart of the piercing pattern, namely the dark cloud cover pattern. Once again, like the piercing pattern, pay particularly close attention to the opening gap. It is key for seeing exuberant, last-minute buyers, before a market capitulation.
Candlestick 1: The first candlestick in the pattern is a bullish candlestick, indicating buying pressure. It represents the continuation of an existing uptrend and opens near or below the previous candlestick’s close.
Candlestick 2: The second candlestick is a bearish candlestick that opens higher than the previous candlestick’s close. Note: There is a price gap between the close of the first candlestick and the open of the second candlestick. So, intraday it would look like the bulls are taking prices to even higher highs, at least halfway into the real body of the first candlestick. In other words, the second candlestick’s closing price is significantly higher than the first candlestick’s midpoint.
Close of candlestick 2: The other key aspect of the dark cloud cover pattern is that the second candlestick closes at least halfway into the real body of the first candlestick. In other words, the second candlestick’s closing price is significantly lower or at least lower than the first candlestick’s midpoint.
The dark cloud cover pattern on the charts
Take a look here for a market example of what candlestick 1 and candlestick 2 from Apple’s weekly chart should look like for the dark cloud cover.
Two final words to note about both the piercing pattern and dark cloud cover patterns. Technically, they have more impact when they are occurring in key support and resistance levels. Secondly, they will occur more frequently in stocks as they have a daily open and close, so are more likely to have the crucial gaps needed for the second candlestick.