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The harami is a bearish candlestick pattern made up of two candlesticks, the first of which is a long white candlestick and the second is a smaller black candlestick that fits inside the long white candlestick (gray circle, Figure 1). The long white candlestick affirms the current trend. The smaller black candlestick forms with a weak open and weak close. This shows sudden indecision and could foreshadow a trend change. |
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FIGURE 1: APPLE COMPUTER. A move below 50 would confirm the bearish divergence and could be used to confirm the potentially bearish harami. |
Graphic provided by: MetaStock. |
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The harami alone is not enough to forecast a trend change, and it is best to look for confirmation. On the price chart for Apple Computer (AAPL), I am watching the 30-day moving average and the late August low. The stock broke below the 30-day moving average in May, and this led to a substantial fall. The July break back above the moving average led to a nice advance. Just below the moving average, the late August low established support at 65. A move below 65 would break the 30-day moving average and this low. Such a move would confirm the harami and call for a short-term reversal. |
For indicators, I like to use the relative strength index (RSI) to confirm a short-term trend reversal. The 15-period RSI broke below 50 in May and this confirmed a downtrend that lasted about two months. The indicator then broke above 50 in July to confirm an uptrend that has lasted about one and a half months. The RSI formed a lower high in early September and a bearish divergence is taking shape. A move below 50 would confirm the bearish divergence and could be used to confirm the potentially bearish harami. |
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