About Those Black Candlesticks

They’re scary looking aren’t they?

I’ve been on StockTwits over the last week tweeting about these guys showing up in the charts of the US Dollar Index and US Treasury Bond ETFs (see here and here). The thing is that these black candlesticks provide a much more powerful signal when they appear at key resistance levels, as they did here.

For the uninformed, we like to use Japanese Candlestick charts because each individual candle tells us a story. In the case of this evil black one, it indicates strong selling pressure. After a long advance (as has been the case in the US Dollar & Treasuries), a black candle like this can foreshadow a reversal or key turning point.

Candles turn black after a gap higher that can’t hold its gains. Throughout the period of time that the candle represents, prices decline to close below the opening print. But because the new close is still above the previous close, the candle is black and not red.

Here are the charts of $UUP and $TLT where you can see the selling that began right after its appearance:



A rally back above these black candles will negate their bearish implications. But so far, it’s been ugly. Watch these guys.