The morning star (see Exhibit 5.3) is a bottom reversal pattern. Its name is derived because, like the morning star (the planet Mercury) that foretells the sunrise, it presages higher prices. It is comprised of a tall, black real body followed by a small real body which gaps lower (these two lines comprise a basic star pattern). The third day is a white real body that moves well within the first period’s black real body. This pattern is a signal that the bulls have seized control. I will break down this three candlestick pattern into its components in order to understand the rationale behind this last statement.
The market is in a downtrend when we see a black real body. At this time the bears are in command. Then a small real body appears. This means sellers are losing the capacity to drive the market lower. The next day, the strong white real body proves that the bulls have taken over. An ideal morning star would have a gap before and after the middle line’s real body (that is, the star). This second gap is rare, but lack of it does not seem to vitiate the power of this formation.
Exhibit 5.4 shows that a bullish morning star pattern developed during December 19 through 21. The rally that began with this pattern ran out of steam with the dark-cloud cover on December 26 and 27.
Exhibit 5.5 shows that the October lows were made via a star (the small real body in the first week in October). The week after this star, the market had a strong white real body. This white real body completed the morning star pattern. The black candlestick after this white body formed a dark-cloud cover. The market then temporarily backed off. The morning star nonetheless became a major bottom.
Exhibit 5.6 shows a variation on the morning star in which there is more than one star (in this case there are three “stars”). Note how the third small real body session (that is, the third star) was a hammer and a bullish engulfing line.