Unless something significant and dramatic were to happen (and it could) within the last six hours of the trading day, Cardano’s July monthly candlestick will close as the second consecutive inside bar on the monthly chart.
Above: Cardano (ADAUSD)
Inside bars are identified as candlesticks that have the entire range trading ‘inside’ the range of the prior candlestick In other words, the monthly candlestick for July has a lower high and a higher low than June’s candlestick, while June has a lower high and a higher low than May’s candlestick, this pattern of two inside bars is known a “Squeeze Alert” as identified by Michael Thomsett in his fantastic book, “Bloomberg Visual Guide to Candlestick Charting.” The current pattern on Cardano’s monthly chart is known as the bearish version of the Squeeze Alert. This is what Thomsett wrote about this pattern:
“… is a three-session pattern offering a very strong reversal forecast. It consists of a white sessions followed by two sessions of either color. Session two opens and closes within the real body of sessions one, and session three opens and closes within the real body of session two. The result is the squeeze, an open/close declining range over the three days. The squeeze is rare, but when it appears it should be treated as one of the most compelling reversal signals.”
In his book, over 208 Japanese candlestick patterns are identified in Thomsett’s work, but few have such strong language describing how bearish this Squeeze Alert pattern can be. I’ve also drawn on Cardano’s chart a series of red trendlines in the shape of a diamond – a diamond top pattern. Another pattern expert – and perhaps the most well-known – Thomas Bulkowski identified the diamond top as one of the most bearish patterns in technical analysis and one with a very low failure rate. On a side note, I am referencing Bulkowski’s book, “The Encyclopedia or Chart Patterns,” and Cardano’s chart, in many ways is a textbook example of the images in Bulkowski’s book. For example, this is how Bulkowski describes some components and behaviors of the diamond top pattern:
1.Volume trend is receding, especially in the latter half of the formation when the price is narrowing.
2.Prices trend up to the formation.
3.The average decline in a bull market: -21% (Bulkowski’l results are based on the stock market, but the results are important nonetheless).
4.Busted performance: too few samples to quantify in a bull market, and NONE in a bear market.
5.Bottom is generally found within 30 days.
In other words, August could prove to be an exceptionally bearish month and prolonged bearish month for Cardano. The light at the end of the tunnel is that Bulkowski noted that there is often a greater than 50% rally after the low has been found. And for you permabulls out there, know that a bullish breakout – while rare – is often extreme. If I see at least two consecutive weekly closes below the July low of $1.0073, then I would expect to see a very, very deep retracement to occur.