3 Key Candlestick Patterns Marking Price Peaks from Semiconductor Stocks in March
When your favorite sector starts to correct, reviewing historical candlestick charts and their price movements can help give you some valuable information! Semiconductor stocks at the moment appear to be in another correction… examining details from their last correction can help you put latest price movements in perspective :)
The majority of semiconductor stocks experienced some form of correction marked by highs in early March. In fact, the majority of these companies experienced price highs between March 7th and 8th, as you can see from the chart below:
Simply by tracking stock price highs over this period, you would have noticed that the majority of stocks appeared to correct slightly after reaching highs in early March.
Looking over a few stock charts, you’ll find a number of similar bearish candlestick patterns across the group.
Some of the most common patterns with these stocks are…
Extended bearish engulfing candles
Evening star candles & their variations
Tower top patterns
The rest of this article is devoted to diving into each example.
Extended bearish engulfing candles
marked the beginning of a number of corrections, including NVDA’s:
On March 8th, a large bearish engulfing candle plagued NVDA’s stock chart, where the stock closed 10% from its high on the same day (which was a decline of 5.5% from the close on the previous day).
The price action on March 8th was actually the peak of bearish activity for the moment, as the stock slowly corrected back up to the top of its range, only to sell off again after reaching the high side of the range.
You would have had to wait until April 17th — 19th for NVDA stock to close much more below the candle from March 8th. But then the large extended bearish candle on April 19th served to mark the end of the short-term correction in price for NVDA stock.
While any large red candle negating multiple recent stock price advances intuitively appears to be an obvious red flag, in these particular cases these candles actually indicated that NVDA stock was oversold in the moment.
Evening star candles & variations
marked the beginning of a number of corrections as well. Here is an example of one on AVGO’s chart:
The candle on March 5th concluded an evening doji star candlestick pattern — after this pattern concluded, you only had about two trading days to close out of your position before the stock proceeded to even lower prices.
From the close on March 5th to the close on March 19th (the low point of the stock’s correction in March), the stock fell an additional 8%. If you had been fooled by the short rally in price after this pattern occurred and bought in around the high on March 8th (another extended bearish candle), from the high to the close on that day you would have seen an 8.5% drop in price, which would have escalated to a 12% drop in price at the close on March 19th before the stock began another rally.
On June 10th, the stock finally closed above the high of this candlestick pattern and continued to make new highs. The majority of the time between then and March 5th, the stock spent time in the trading range defined by the evening star candlestick pattern from March 5th or in an additional ~8% correction below the range.
Depending on the screener that you use, the three candle pattern concluding on March 5th may or may not have been flagged as an evening doji star candlestick pattern. I plan to write an article at some point discussing the variations to evening star candlestick patterns that I’ve seen in the markets recently, so keep an eye out if you’re interested in more.
Tower Top Candlestick Patterns
are seen marking the tops for numerous other stocks on this list as well, for example with AMAT the candle on March 8th concluded the end of a tower top pattern:
The tower top pattern for AMAT formed a trading range that was in play until May 15th. On March 8th, the stock sold off about 4% from the high of the day to the close of the day. From the close of the day on March 8th, the stock only sold off an additional 3% before the stock began to rally again, which was cut short running to resistance around the highs of the pattern at the top of the trading range.
Thanks for reading & happy trading!
