Piercing Pattern

Coming to Netflix in August, the horror event of the summer: Piercing Pattern. Your grandma's sewing circle will never seem safe again...

Actually, the term refers to a situation that comes up in technical analysis. It's marked by a down day followed by an increase on the following day. The pattern indicates a potential reversal, with a recent downtrend coming to an end.

A piercing pattern consists of two days. On the first, the stock posts a relatively big drop (indicated on a candlestick chart by a black or red bar). Then, on the second day, it gaps open lower (the opening price is lower than the closing price on the previous day). However, the stock turns around after the open and eventually finishes higher for the day, getting back at least half the losses posted on Day One.

The pattern indicates that selling pressure has burned itself out. The stock fell on the first day, and continued to fall early in the second day. But the downward momentum ran out of steam, and the stock rebounded, suggesting that the downward pressure has abated.