Stock Of The Day: Bearish Engulfing Pattern For AppLovin?

AppLovin Corporation APP is down on Thursday. The stock recently staged a strong rally after reporting earnings, but yesterday a classic reversal pattern formed on the chart.

A new downtrend may be forming. This is why AppLovin is the Stock of the Day.

APP is feeling the pressure from bearish momentum. See the full story here.

Chart patterns are graphical illustrations of the supply and demand dynamics that are occurring in a market.

Many traders look for signals by using Candlestick charts. Some are surprised to find out that these charts were first developed by Rice traders in Japan in the 1500s. People have been looking at the same patterns for 700 years!

The reason why the patterns are still valid is that they show human emotions, and although many things have changed in seven centuries, humans haven't.

When the market opened yesterday morning, AppLovin was higher than the prior day's closing price. It looked like the recent uptrend was going to continue.

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But by the close, the tide had turned.

The sellers overpowered the buyers and pushed the price lower. Importantly, they pushed the stock below the previous day's opening and closing prices.

Most daily volume for a stock typically trades on the open or closing prices. This means there is a large interest in them among traders and investors, so there tends to be support at them.

The fact that the stock fell right through these important levels shows that the sellers are extremely aggressive. The closing price was below Tuesday’s open.

This formed a classic Bearish Engulfing candlestick pattern on the chart. The trading range between the open and close engulfed the prior day’s range.

This is where the pattern gets its name from. These patterns are also referred to as outside reversal days.

The sellers may have taken control from the buyers. This could be the start of a new downtrend and shares of Applovin may be headed lower.

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Photo: Piotr Swat via Shutterstock