| It was as plain as the company name over the front | | | | because it looks like a shooting star), which in itself is |
| door of the building: A major decline in the value of | | | | bearish. Therefore, this particular three-bar Evening |
| Bear Stearns' shares was set in motion more than a | | | | Star pattern was very significant as a predictor of a |
| year ago. The signs were so clear that anyone | | | | decline in prices. (Of course, we could not know how |
| possessing knowledge of Japanese Candlesticks | | | | it ultimately developed until the month of February, |
| stock price charting could have seen it coming, if only | | | | its third bar, was complete). |
| he had chosen to look. | | | | But, by this reckoning, observers could have known |
| That sounds preposterous on the face of it. What | | | | at the end of January that a Shooting Star was |
| "signs" were there, that long ago, when Bear's | | | | already in place, representing January's price action; |
| fundamentals were good and its stock price was at a | | | | and that, accordingly, there had been a warning shot |
| peak? Let me count the ways. | | | | across the bow. |
| The key lies in Japanese Candlesticks stock price | | | | However, it was not necessary to wait that long for |
| charting analysis. The Candles pay no attention to | | | | a firmer clue: the Weekly chart showing the second, |
| fundamentals. What they have, in spades, is their | | | | third, and fourth weeks of January (there being five |
| ability to reflect the underlying psychology of the | | | | weeks in that month) also displayed an Evening Star |
| market for a particular stock, or Index, or | | | | pattern for those three weeks considered together, |
| commodity, at any given time. | | | | although the pattern was not as perfect an example |
| Within Candlestick charting, there are a dozen or so | | | | as the first one. So, by the close of business on |
| major price patterns which form the basis of the | | | | January 26, being the end of the fourth week of |
| analysis. One of them is the "Evening Star" pattern, | | | | January, there was an Evening Star in place, being a |
| which typically is formed by the price bars of three | | | | reasonably good indication that prices were headed |
| time periods - say, the bars representing three | | | | lower. |
| months in a row, or three weeks in a row, or three | | | | But it was not necessary to wait even that long: the |
| days in a row. The first bar of the three will be a | | | | Daily chart for January 18 was a Bearish Engulfing |
| "white bar" showing a healthy price rise and an "up | | | | pattern, which engulfed the bodies of the previous |
| month" or "up week" or "up day." The second, or | | | | three days' prices. |
| middle, bar will show a much smaller price movement | | | | So, by the close of the markets on January 18, |
| between the opening price and the closing price, the | | | | observers could have known the first major signal, |
| implication being that the market is "taking a | | | | namely: that a Bearish Engulfing pattern was in place; |
| breather." This is an early warning of a possible | | | | by the close of the markets on January 26 (the end |
| reversal of trend. The third bar will show a substantial | | | | of the fourth week of the month) they could have |
| decline in prices during that time period, and will | | | | known the second major signal: that a (bearish) |
| represent a "down month" or "down week" or "down | | | | Evening Star pattern was in place; by the close of |
| day." The Evening Star three-bar pattern is bearish. | | | | the markets on January 31 they could have known |
| Another key Japanese Candlesticks pattern is the | | | | that January had developed as a (bearish) "Shooting |
| "Bearish Engulfing" pattern, a single time bar which | | | | Star;" and by the end of February they could have |
| displays such a wide spread between the opening | | | | known that a classic (bearish) Evening Star had |
| price and the closing price that the spread "engulfs" | | | | formed, representing the months of December, |
| the bodies of the price bars of one or more previous | | | | January, and February. |
| time periods. This pattern, too, is bearish. | | | | The upshot is that an investor could have shorted |
| So much for background. | | | | Bear Stearns stock on March 1, 2007 - more than a |
| On the Monthly chart of Bear Stearns' stock, the | | | | year ago - with conviction that prices were headed |
| price bars for the months of December 2006, | | | | much lower. |
| January 2007, and February 2007 - i.e., those three | | | | This is not just knowledge with the benefit of |
| months considered together - formed an "Evening | | | | hindsight. The clues fell into place in real time, in plain |
| Star" pattern. It was especially bearish in this case, | | | | sight. All that was needed were eyes and |
| because the second - or middle - bar, the bar for | | | | comprehension. |
| January, was a "Shooting Star" (aptly named, | | | | |