Unless something significant and dramatic happens (and it could) within the last six hours of the trading day, Cardano’s monthly candlestick will close as the second consecutive inside bar on the monthly chart in July.
Above: Cardano (ADAUSD)
Inside bars are identified as candlesticks whose entire range is trading “within” the range of the previous candlestick. This two inner bar pattern is higher than the candlestick in May and is known as a “squeeze alert” as Michael Thomsett said in his fantastic book “ Bloomberg Visual Guide to Candlestick Charting ”. The current pattern on Cardano’s monthly chart is known as the bearish version of the Squeeze Alert. This is what Thomsett wrote about this pattern:
“… Is a three-session pattern that offers a very strong prognosis for reversal. It consists of a white session followed by two sessions of each color. Session two opens and closes within the real body of session one, and session three opens and closes within the real body of session two. The result is the squeeze, a falling open / close range over the three days. The squeeze is rare, but when it does occur it should be treated as one of the most compelling reversal signals. “
In his book, Thomsett’s paper identifies over 208 Japanese candlestick patterns, but few have language as strong as that to describe how bearish this squeeze alert pattern can be. I also drew a series of red trend lines in the shape of a diamond on Cardano’s chart – a diamond pattern. Another pattern expert – and perhaps the best known – Thomas Bulkowski identified the diamond point as one of the most bearish patterns in technical analysis and one with a very low failure rate. As an aside, I refer to Bulkowski’s book “The Encyclopedia or Chart Patterns,” and Cardano’s diagram is in many ways a textbook example of the images in Bulkowski’s book. For example, Bulkowski describes some of the components and behaviors of the diamond pattern:
1. The volume trend is declining, especially in the second half of the formation when the price narrows.
2. Price development up to education.
3. The average decline in a bull market: -21% (Bulkowski’s results are based on the stock market, but the results are important nonetheless).
4. Broken performance: too few samples to quantify in a bull market and NONE in a bear market.
5. Bottom is usually found within 30 days.
In other words, August could prove to be an exceptionally bearish month and an extended bearish month for Cardano. The light at the end of the tunnel is that Bulkowski noted that there is often more than 50% rally after the low is found. And for you permabulls out there, you know that a bullish breakout – while rare – is often extreme. If I see at least two consecutive weekly closings below the July low of $ 1.0073, I would expect a very, very deep retracement.