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:

Copper 25%
Oil 23%
Nat Gas 13%
Soybeans 31%
Wheat 5%
Sugar 20%
Gold 22%

In other words, it doesn’t work.

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