Bullish Engulfing & Rising Window In Libbey

10/04/04 09:46:11 AM

by Chris Manuell

Libbey has endured a steady downtrend since July, punctuated with a high-volume collapse, down 14% on August 17. Bulls appear to be mounting a challenge, with a couple of candlestick patterns emerging to quell the selling.

Security: LBY
Position: N/A

Libbey (LBY) has endured a steady downtrend since July, punctuated with a high-volume collapse, down 14% on August 17. Bulls appear to be mounting a challenge, with a couple of candlestick patterns emerging to quell the selling. LBY completed a bullish engulfing on September 29. This is a top reversal pattern, which is a two-candle formation, and it demonstrates that buyers have overwhelmed the sellers. The second real body must engulf the prior real body and the second real body should also be the opposite color of the first real body. LBY exhibited these characteristics, with the small black body on September 29 completely engulfed by September 30 by the strong white body. LBY enhanced the chances of this bullish engulfing pattern being a success; with a small first real body representing indecision by the bears, also enjoying heavy volume on the second real body.

LBY confirmed the bullish engulfing pattern the following session with a bullish rising window, the Japanese reference to a gap. A rising window is a bullish signal. There is a space on the chart where prices have failed to fill -- the gap between the September 29th high of 18.09 and the September 30th low of 18.10. Windows also offer good support and should provide traders with a good opportunity to buy if there is a pullback. A close beneath the bottom of the window -- 18.09 -- would negate the pattern.

Figure 1: Libbey, with bullish engulfing and rising window

Graphic provided by: StockCharts.com.

Average directional movement index (ADX) turning down from the 50 level also hints that the recent downtrend of LBY may have ended, with that usually reliable signal that the existing trend has weakened.

LBY has already overcome its first resistance level, with a close above the 20-day exponential moving average (EMA) on September 30 and the next target the 50-day EMA.

The long-term picture of LBY would remain positive if the market can overcome the marubozu line from the marubozu session of August 17. A marubozu is the body of the candlestick formation -- the difference of the open and close of a session. The marubozu line is the midpoint of the body of the marubozu. This is a 50% line between the open and the close. This retracement point often acts as a potential support or resistance line. The marubozu line from the high-volume capitulation session on August 17 is 21.25. Clearance of this level would improve the longer-term prospects of LBY.

Chris Manuell

Chris Manuell spent 7 years as a futures sales/trader for a large investment bank and more recently as a technical analyst for an independent research company. He has a bachelor of economics and graduate diploma in applied finance & investment. Currently enrolled in the CMT program with the MTA.