Thus far, 2008 has not been a very good year for investors, whether they are interested in stocks, bonds, or real estate. 

The overall mood in all investment markets has been generally bearish.  Most indicators seem to be indicating that the economy is falling into a recessionary period. 

The amazing thing about this occurrence is that it could have been predicted through the use of certain candlestick patterns, even in a nontraditional way for the mortgage and housing markets.

The Evening Star and Housing

Candlestick chart analysis offers all the information that is contained in classical bar charts, but enhances the graphical display – giving an individual analyst an improved capacity to perceive trends and the probability of their continuation or reversal.

One particular candlestick pattern known as the Evening Star is one of the most widely recognized formations used by market analysts to demonstrate the continuation of an established bear market. 

One of the reasons for its popularity is the ease of its recognition.  This pattern consists of the initial candlestick having a long white body, which is followed by a subsequent smaller gapped up price that fails. 

The third day of the formation is characterized by a down close, which is below the midpoint of the first candlestick. 

When these types of patterns appear, they signal a clear sign that the participants of the market do not believe that there is a possibility of increased prices, and, as a result, prices will continue to move down.

Mapping the Evening Star via WaMu

In terms of the housing and mortgage market, one can use candlestick patterns, such as the Evening Star, to predict that the current down slump will continue. 

As there is no opening, high, low, or closing prices for the housing or mortgage market, this must be done in an indirect manner. 

By plotting and looking at candlestick charts for a related public industry institution with historical available price data, such as Washington Mutual, for example, a lender deeply dependent upon the mortgage market, one can clearly find certain candlestick patterns that would have demonstrated the future movements not only of the individual stock in question, but also the related probable movements of the overall housing market.

This type of analysis of Washington Mutual’s stock-price, along with related companies that reduce individual corporate idiosyncrasies, demonstrated foreboding deterioration of the housing market prior to its actual occurrence. 

From historical candle stick charts of Washington Mutual's stock price movements, the formation of certain classical patterns predicted not only the fall of the stock price, but the eventual concomitant deterioration of the housing market. 

An astute analyst would have recognized these patterns, and then would have observed subsequently, the deterioration of the housing market.

By carefully applying recognized candlestick chart pattern formations to related industry participants where data is available, one can successfully predict macroeconomic markets, such as the housing and mortgage markets. 

The key to success is to observe clearly dependant companies with available price data, as the candlestick formations demonstrated by the historical price charts will forecast future macroeconomic movements in non-tradable markets.