Long Black Real Body at High Price Area

just as a long white candle could be an early signal that the market may
be trying to build a bottom, so it is that a distinctively long black real
body at a high price may be a tentative warning of a top. The long black
real body should be significantly longer than the candles preceding it.
This is illustrated in Exhibit 2.16. Such a long black real body displays
that the bears had grabbed control of the market. The longer the rally
continued and the more overbought the market, the more reliable the
cautionary signal of this long black real body becomes.

The long white candle (1) in Exhibit 2.17 echoes a vibrant market.
However, there were a few warnings that Home Depot was overheating.
The first was that the relative strength index (RSI) was above 70o/oS. uch
a high RSI figure is a clue that the market is overbought. Another sign
that the bulls were losing their upside push was the series of small real
bodies following the tall white candle at 1. These small real bodies showed
that the supply-demand situation was more in balance as comPared to
tall white candle 1 (candle L showed that demand was overwhelming
supply). Small real bodies are discussed in more detail later in this chapter.

Falling black real body at 2 showed that the bears had wrested control
of this stock. Note how black real body 2 was the longest black real body
since at least November 1992. This shouts out a warning that there is
now something very different about the market, and that appropriate
defensive action-such as selling covered calls, or offsetting some longsshould
be undertaken. For those who are familiar with all the candle
patterns, note how the tall white candle at 1 and the black real body at