Analysis: Mastermyne Group Limited (MYE.AX) 2011/2012
Mastermyne Group Limited (MYE.AX) is a company in Australia which provides services and the manufacture of parts for underground coal mining in Queensland and New South Wales. After a strong finish to 2010, the stock has ranged within consecutive horizontal Channels, the second more confined than the first.Â
The Channels indicate consolidation within the market, positioning MYE for a breakout at some point, assuming the stock does not segue into yet another Channel pattern. If they prove to be Rectangle Tops, MYE carries a greater chance of an upward breakout and a continuation of the prevailing bull market. This owes to the nearly 70 percent upward breakout rate among Rectangle Tops.
Studying the micro-movement of the stock in recent weeks presents the same view, at least in the short term. It does this despite the presence of a strong bearish reversal candlestick pattern.
trading.com.au/wp-content/uploads/2012/01/Analysis-Mastermyne-Group-Limited-12-20-11-chart-2.gif”>At the bottom of a distinctÂ down-trend, MYE manifested a Bearish Doji Star candlestick pattern. The Bearish Doji Star is a chart formation which is made up of two consecutive candlesticks and can appear on nearly any type of chart. Bearish Doji Star formations are moderately reliable and often produce modest gains after the breakout. They are considered to be bearish reversal patterns.
In keeping with its classification as a bearish reversal, the Bearish Doji Star tends to be found at the top of uptrends as opposed to downtrends. They can be found in any market, but their effectiveness lies in reversing bullish momentum, thus they are more reliable and perform significantly better in bull markets. In fact, the stronger and more established the bull market, the greater the resultant price drop after the Bearish Doji Star confirms.
A Bearish Doji Star candlestick pattern forms when a long white candlestick emerges on the first day. On the second day, a gap up occurs which eventually forms a Doji candlestick. The second candle need not be a pure Doji, however, as there is some leeway allowed for real body size and shadow length. The candlestick may feature a more substantive real body than a Doji either in the form of a short candlestick, Spinning Top or High Wave candle pattern. The rule of thumb is that the real body should be small, preferably black in colour. The gap up on the open is non-negotiable, however. Without the gap up, the pattern more closely resembles a Bearish Meeting Lines, Bearish Harami Cross or the first two candles in a Rising Three Methods pattern.
The pattern represents a severe weakening in the bullish momentum as displayed by the fact that the bulls were not able to advance price very far above the open on the second day. The presence of upper and lower shadows indicates at the very least that buyers were able to move price to a new high at some portion of the trading period, but ultimately the bears prevailed and dropped price to the same level as the open or very near it. The gap up that worked in favour of the bulls now acts as an unfulfilled opportunity to move price higher, and buyers must wait to see if their chance to powerfully influence the market has been squandered.
One way that buyers can know whether they have lost control of the market is the confirmation that is likely to occur on the third day. A Bearish Doji Star candlestick pattern confirms by way of a gap down, black candlestick or lower close. Absent of these, the market will either trade horizontally or continue upward. In the latter case, the Doji Star pattern can be considered a bullish continuation formation.
MYE confirmed its Bearish Doji Star on the fourth day with a gap down on the open. From there, bears were likely expecting continued bearishness, but the environment was not the most conducive to this Star pattern. Thus, if the Doji Star was going to act as a bullish reversal, the odds were better that the uptrend would not last for very long before resuming the downtrend. It defied the odds, however, and reversed into an uptrend that seemed to stall between 1.450 and 1.500. Shorts who awaited confirmation would have been disappointed, but as long as stops were set they would not have been too negatively impacted by the bullish rally.
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