|Another temporary casualty of the Enron scandal, Krispy Kreme (KKD) stock took a sudden downturn on February 5, when the technicalties of their new leasing agreement were pronounced questionable by Forbes magazine. But in the following days, the stock has rebounded, and formed a candlestick pattern known as "three white soldiers." This is classed as a significant and positive indicator of a trend reversal, and Krispy Kreme seems destined to continue upward, perhaps topping out at 40.|
|The three white soldiers pattern has the following characteristics:|
1. Three consecutive long, white bodies, each with a higher close.
2. Each successive candlestick should open within, and preferably above, the halfway mark of the previous day's body.
|KKD produced the third candlestick of the three white soldier formation on February 7, 2002, albiet with a long tail on the first soldier.|
|Graphic provided by: Bigcharts.com.|
|But how important is an indicator that tells you your stock is going up when. . . well, your stock is going up? This particular pattern tends to occur during a strong, steady upward movement, as shown by the length and overlap of the candlesticks's bodies. In Greg Morris's "CandlePower," he rated the effectiveness of candlestick formations for three-, five-, and seven-day intervals. He found a whopping 75% average effectiveness rate on the classic three white soldiers formation. This is an amazing,if hard to believe, statistic in an arena where any indicator above 50% accuracy is considered tradable, thus placing this formation in the high end of reliability.|
|Krispy Kreme's stock follows a somewhat predictable pattern. It has been shooting upward following Quartery Earnings reports. These reports have been consistently exceeding analysts' predictions, and the stock has responded by going upward for $5-10 with the P/E ratio exceeding 100. At that point, a selloff occurs and the stock's price drops, losing maybe half of its recent gains, only to start back upward again--a classic upward trending stock.|
Krispy Kreme's next Quarterly Earnings report is due out on March 8--Look for KKD to have an immediate and explosive reaction to the numbers.
|Company:||Technical Analysis, Inc.|
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