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LPNT Has A Dark Cloud Cover

04/08/08 01:36:59 PM
by Chaitali Mohile

Lifepoint Hospital formed a dark cloud cover after a significant upward rally forming a rising wedge. These two bearish patterns may drag down the stock.

Security:   LPNT
Position:   N/A

The dark cloud cover is a bearish reversal candlestick pattern that occurs in an uptrend only. The pattern is also said to be a counterpart of the piercing pattern. Since the pattern appears in an uptrend, the first candle reflects the current bullish trend and the second shows the changing trend that is bearish. Here, the second candle opens above the high of previous white candle. In Figure 1, all these conditions are fulfilled by Lifepoint Hospital Inc. (LPNT). During the downtrend in January and February 2008, the stock collapsed to 23, losing ~ 10 points. But as the relative strength index (RSI)(14) turned highly oversold along with a bullish crossover in the moving average convergence/divergence (MACD), LPNT formed a base and began its upside journey with a gap up.

FIGURE 1: LPNT, DAILY. The dark cloud cover and rising wedge may drag down the price and the uptrend too.
Graphic provided by:
The trend too changed to an uptrend and the stock rallied higher. This single directional move was not accompanied by strong volume and thus the volume lessened with upper price levels. This formed a rising wedge, another bearish reversal pattern that brings down the stock to lower levels.

The dark cloud cover is a bearish reversal pattern that results in a price correction and the trend changes to bearish. The corrective phase can be wide enough to fill the gap up that occurred earlier.

The RSI (14) has a strong resistance at 70 that has never been violated before. So the possibility of a decline is higher with a descending RSI (14). With this turmoil, the developed uptrend might decline too and turn in favor of bears. The MACD (12,26,9) has traveled a long way up from negative territory, and thus, traders and investors can look for some profit-booking instead of carrying the trade ahead. On lower levels, fresh buying can be done with a fresh view on the stock.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
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Date: 04/09/08Rank: 3Comment: 

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