Three Stars in the South

Our annoying little nephew O’Kayden has an overnight field trip coming up to look at constellations, and he wants us to go along. Unfortunately, we tell him, we can’t make it. Sad face. We’ll be home looking for our own constellations. Well, one in particular. We’re going to be spending the evening looking for the elusive “three stars in the south,” and while it’s not a constellation per se, it does have the word “stars” in it. So, uh...that should count.

“Three stars in the south” is a distinctive candlestick pattern we see when a bearish trend is starting to become bullish. It’s characterized by three candles: a firecracker, a rolling pin, and a square. And no, those aren’t the official names, but that’s what they look like.

The first one has a long body, no upper shadow, and a long lower shadow. It kind of looks like the firecracker emoji. The second candle, which has a long body with short little tails, looks like a rolling pin, and tells us that the opening price today was higher than yesterday…but the market’s not quite ready to commit to a full-on trend reversal. The third candle, which is just a short little square body with no tails and a range very close to yesterday’s rolling pin, tells us that investors are beginning to gain confidence in this stock.

This pattern always comes on the heels of a downtrend, but that doesn’t mean it's always the prelude to a huge upswing. All this pattern tells us is that the market might be ready to go bullish on this security, so it’s not always an automatic signal to start buying and selling. But it's pretty rare, so if hunting one down is what we need to do to get out of an overnight field trip with O’Kayden and his slime, then we’re all for it.