So ICAP has apparently said that a “Shooting Star” pattern in a commodity index is very bearish. I have used my day type indicator to check whether this is true.
A shooting star occurs when the market opens higher than the previous close, trades up, but closes back near the open. You can have a look at it here.
I tested whether this pattern predicts the reversal of an uptrend. I examine whether the market was higher or lower five days after the shooting star pattern. To be fair to the writers (who say the pattern can signal the reversal of a rally) I have required that the market be in an uptrend (closing price > closing price 20 days ago).
Here is a list of the percentage of times over the past ten years that a shooting star has been bearish for various commodities:
Nat Gas 13%
In other words, it doesn’t work.