A Bearish Engulfing Pattern is a Candlestick Pattern and occurs when a positive candle with a relatively small body is followed by a negative candle with a larger body. It is important that the body of the second candle fully encompasses the body of the first candle. Ideally, the second candle has no or only a very small wick at the bottom. This combination tells us a number of things:
Just like its bullish counterpart, the Bearish Engulfing Pattern is a reversal pattern. It is an indication that the current existing upward short-term or long-term trend is coming to an end and a negative trend reversal is imminent.
Until the end of 2020, the short-term trend of Alliance Resource (ARLP) is rising. It is important to note that at that time the long-term trend is still declining, with a share price below the 200-day simple moving average. After 1 January, two consecutive bearish engulfing patterns suddenly appear. In the following months, price drops from $12 to a low of just $2.7. At the beginning of march - after two consecutive ascent days - a third bearish engulfing pattern formed (which was another great opportunity to get on board if you had missed the first setups).
The ChartMill Team