Facebook Inc (NASDAQ:FB) stock may be about to enter correction territory, at least according to a classic warning of bearishness ahead that appeared in the form of an ominous technical pattern earlier this week. The pattern is known as the eveningstar pattern, and it’s made up of a big white candle, a “narrow opening and closing range ‘doji’ candle, and completed by a large dark candle.”
Courtesy: Google Finance
Technical warning about Facebook stock
In a post on The Street, Robert Moreno describes the technical pattern and explains the specifics of how it looks on the Facebook Inc (NASDAQ:FB) stock chart. He said the eveningstar reversal started when the stock fell below the resistance level in the $117 per share range and took three days to for. He explains that the pattern usually indicates that the stock will be shifting from bullish mode into a bearish cycle, adding that many consider this pattern as a reliable warning.
Moreno said that after the evening star formed, Facebook Inc (NASDAQ:FB) stock dropped sharply, pulling back 15% and taking it lower than its 50-day moving average. However, he said the stock quickly returned to its average and became more volatile with higher highs and higher lows. This carried Facebook stock up to the eveningstar high, he explained.
“Dark cloud cover” over Facebook stock
“The dark cloud cover candle formed at this previous level of resistance,” Moreno said in his post. “The definition of a dark cloud cover candle is one that follows a bullish long body candle that closes near the high of the session.”
He explained that the cloud candle moves higher at the open and then closes in the “lower half of the previous up candle,” adding that the candle is seen as a bearish warning when it appears because it appears at the former resistance level. He also said that the fact that both the relative strength index and the money flow index both reached the “lower end of their overbought zone” reflects both “extended price and money flow readings.”
Moreno warned that if the candle does send Facebook stock spiraling downward, then the upward trend that can be seen from the lows in February and March and the $110 resistance level should help support it for now. He also said, however, that history suggests the fall could also be much worse.