On Opendoor’s stock chart, a “bearish engulfing” pattern appeared, which could be a sign of a trend reversal.
On Tuesday, Opendoor Technologies Inc.’s stock was soaring toward yet another record close when it abruptly turned around on no news and ended the day much lower.
That is precisely the kind of trading activity that some Wall Street analysts believe indicates a stock’s short-term peak.
In Opendoor’s (OPEN) stock chart, the action produced a traditional pattern called a “bearish engulfing,” which many technicians would interpret as a reversal of a stock’s bullish trend.
A two-day pattern is the format of bearish engulfings. To demonstrate how aggressive bulls were being, Opendoor’s shares opened at $6.41 on Friday, above the closing price of $5.96 from the previous session. Then, with bulls still in complete charge, shares of the residential real estate e-commerce platform surged even higher, closing at $6.65, a second consecutive record finish.
Despite no new information being released, the “cult stock” then surged to a three-year intraday high of $7.32 on Monday after another gap up at the open at $7.00 per share. The shares had surged 82.1% over a seven-day winning streak at that intraday peak. (They had soared 788.5% in the last three months as of Monday’s close.) Once more, every indication suggested that bulls were in complete control.
On no news, however, it appears that the bottom fell out within 30 minutes of the opening bell. At $6.04 on Monday, the stock was down 9.2% from its Friday opening price. Technically speaking, the bulls were swallowed up by the bears.
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Because it shows a behavior where bears took the bulls’ best shot and then launched a surprise, effective counterattack, that pattern alerts traders to a top. The premise is that bulls wouldn’t have turned tail so quickly if they truly had the control they believed they had, especially in the absence of any important news to frighten them away.
On the plus side for bulls, the pattern was visible on a daily chart, so if it does form a top, it might only do so temporarily. Naturally, that short-term impact could turn into something a little longer term, as it has for shares of Strategy Inc. (MSTR), the software business and bitcoin play that was originally known as MicroStrategy.
See also: What MicroStrategy’s stock chart’s significant “key reversal” pattern might indicate.
“Bearish engulfings” and “key reversal” patterns are extremely similar.
However, like with any market-timing method, it’s wise to analyze how a certain pattern has performed for a stock in the past. A particular pattern could be effective for one stock but not for another because every stock has unique behavioral patterns.
On Nov. 2, 2021, the day after Opendoor shares closed at an eight-month high of $24.75, a bearish engulfing last materialized at a noteworthy high. That level has still not been reached by the stock.
It is true that historical stock behaviors do not always recur, as chart watchers will always observe.
Opendoor’s stock chart’s bearish engulfing doesn’t necessarily indicate that the recent wild ride is over, but it does alert bulls that a yellow light has flashed, at the very least.
Additionally, bear in mind that, similar to Strategy shares, there is a considerable likelihood that the stock will rebound somewhat in the near future following Monday’s significant selloff. However, the pattern is still viewed as bearish as long as the closing price from Friday isn’t exceeded. Some would even argue that in order to eliminate the pattern’s bearish influence, the stock would need to reach a new intraday high.
In any case, those who want to buy on the dip should exercise caution and be ready for faster intraday reversals (see to Strategy’s stock chart).
