The upside-gap tasuki (see Exhibit 7.14) is another continuation pattern. The market is in an uptrend. A white candlestick gaps higher and is followed by a black candlestick. The black candlestick opens within the white real body and closes under the white candlestick’s real body. The close on the black candlestick day is the buy point. If the market fills in the gap (closes the window) and selling pressure is still evident, the bullish outlook of the upside-gap tasuki is voided. The same concepts would be true, in reverse, for a downward-gap tasuki (see Exhibit 7.15).
The real bodies of the two candlesticks in the tasuki gap should be about the same size. Both types of tasuki gaps are rare.
Look at Exhibit 7.16 for an example of an upside-gap tasuki. In the last week of September, the market experienced a small upside gap via a white candlestick. The next weekly black candlestick opened in the prior week’s real body and closed under that white real body’s open. This created an upside-gap tasuki. Note how the small window opened by this pattern provided support in the October pullback. The bullish belt hold signaled the advent of the rally.
High-price and Low-price Gapping Plays
It is normal after a sharp one to two session advance for the market to consolidate the gains. Sometimes this consolidation is by a series of small real bodies. A group of small real bodies after a strong session tells us that the market is undecided. However, if there is an upside gap on the opening (that is, a window) from these small real bodies, it is time to buy. This is high-price gapping play pattern (see Exhibit 7.17). It is called this because prices hover near their recent highs and then gaps to the upside.
A low-price gapping play is, not surprisingly, the bearish counterpart of the high-price gapping play. The low-price gapping play (see Exhibit 7.18) is a downside window from a low-price congestion band. This congestion band (a series of small real bodies) initially stabilized a steep one to two session decline. At first, this group of small candlesticks gives
the appearance that a base is forming. The break to the downside via a window dashes these bullish hopes.
Exhibit 7.19 illustrates that in late October/early November, a series of three small real bodies helped digest the gains of the prior tall white candlestick session. When sugar gapped up it completed the first upward-gapping play pattern on this chart. The market rallied until the dark-cloud cover on November 17 and 18. High-price gapping play pattern 2 had a tall white candlestick session, some small real bodies, and then a window. This window converted to support level.
The candlesticks in Exhibit 7.20 sent a bullish signal when the window opened on June 29. This window completed the action needed to form the upward-gapping play. Prior to this gapping play, there was a strong a strong white candlestick on June 11. A group of small candlesticks followed this line. This had the potential to become a high-price gapping play. No upward gap, however, meant a no buy signal.
As shown in Exhibit 7.21, on July 20 and 21 the S&P quickly fell 18 points. It then traded sideways at lower price levels for over a week (for a gapping play, the consolidation should not last more than 11 sessions). A Japanese broker related to me that one of her clients in Japan (a fund manager who applies candlesticks) obtained a sell signal on August 2 (see arrow at the doji) based on the low-price gapping play pattern.
This shows an aspect about the candlesticks which has been discussed in earlier posts. The techniques and procedures used to interpret the candlestick patterns are guidelines, not hard and fast rules. Here we have an example where the ideals of the low-price gapping play were not exactly meet, yet the Japanese fund manager thought it was close enough to act on. In principle, for a low-price gapping play to be completed the market should gap lower.
The low on August 1 was at 355.80 and the high on August 2 was 355.90. Thus there was no gap. Yet it was close enough that the Japanese fund manager got his sell signal on August 2. Note also the sharp decline preceding the small real bodies did not close on the low. Yet, because prices stayed within the lows of the range during the next few sessions, it resembled the low-price gapping play closely enough to provide the Japanese candlestick practitioner with a sell signal on August 2. This is an illustration of how candlestick patterns, as with all charting techniques, offer room for subjectivity.