CNX Forms Bearish Engulfing at $41 After Five-Week Rally — Will Buyers Step Back In?

The bearish engulfing pattern is a two-candle reversal formation that appears at the end of uptrends, earning its name from the way the second candle's body completely engulfs the first. After a green candle continues the rally, the next session opens higher than the previous close but then reverses sharply, closing below the prior candle's open. This complete envelopment of the prior day's body signals a decisive shift in market control from bulls to bears.

As Stepehen Bigalow explains in Profitable Candlestick Trading, "the black [red] candle completely engulfs the previous day's white [green] candle," demonstrating that "the sellers started showing their colors" and have taken control from the buyers.

What makes this pattern psychologically significant is the gap higher at the open—a last gasp of bullish conviction—followed by the subsequent collapse. Buyers who pushed prices to new highs find themselves overwhelmed as sellers flood the market. The session that began with optimism ends in defeat, with the close falling below where the prior day even began. This shift reveals that the supply of willing buyers has been exhausted.

When assessing bearish engulfing quality, look for maximum contrast between the two candles. An ideal formation shows a small green body getting swallowed by a large red body—the smaller the first candle and the larger the second, the more dramatic the power shift. The pattern gains additional weight when it forms after an extended rally or at a logical resistance area.

Chart Analysis: CNX's Bearish Engulfing Formation

The Setup

CNX rallied cleanly for five weeks from mid-October lows near $33, carving out a series of strong white candles that pushed the stock through the $38 level and into the low $40s by early December. The advance was persistent but measured, with the 50-day moving average (shown in blue at $34.96) tracking steadily upward in support. By Friday, December 5th, the stock reached $42.13 intraday—a gain of nearly 28% from the October base—with RSI climbing to 79.17 and Stochastics peaking above 89, both signaling overbought conditions.

The Pattern Formation

Looking at the chart, the bearish engulfing pattern formed across Friday and Monday. Friday's session produced a modest white candle that opened at $40.75 and closed at $40.90, showing continued buying but with diminished momentum—the body measured just $0.15. Monday, December 8th opened with a gap to $41.19, pushing above Friday's high in what appeared to be a breakout attempt. Instead, sellers took control immediately. The stock reversed sharply from the $41.49 high, plunging through Friday's entire range to close at $40.73. Notice in the formation how Monday's red candle completely engulfs Friday's small white body, opening above it and closing below it.

Here's where pattern quality matters: Friday's tiny $0.15 body revealed that the rally was already losing steam at $41, while Monday's $0.46 body (more than three times larger) demonstrated that bears seized control with conviction. Volume increased to 2.53M on Friday and maintained at 2.05M on Monday—above-average participation confirming that institutional sellers were active.

The Technical Context

This pattern gains significance from where it formed: right at $41, a round-number psychological resistance that capped Friday's initial push to $42.13. The engulfing formation now sits approximately $6 above the rising 50-day MA at $34.96, representing a 17% extension from that key moving average—a level that often attracts mean-reversion selling. Additionally, both RSI and Stochastics had reached extremely overbought readings (RSI 79.17, Stochastics 89.65) before Monday's reversal, creating negative momentum divergence just as the bearish pattern formed. The convergence of these factors—psychological resistance, overextension from support, overbought oscillators, and a quality bearish engulfing pattern—makes this a high-probability reversal setup worth monitoring closely.

Trading the Bearish Engulfing Pattern

Educational Note: The following describes common approaches used by candlestick practitioners and is not trading advice. All trading involves significant risk.

Entry Strategy & Confirmation

When setting entries for bearish engulfing patterns, practitioners typically wait for confirmation on the session following the pattern. Confirmation comes when prices open lower and maintain weakness, or when the next candle closes below the engulfing candle's low. For this CNX pattern, Tuesday's session would need to close decisively below Monday's $40.49 low to validate the reversal signal. Some traders enter immediately on the close of the engulfing candle itself, while others prefer the additional confirmation to avoid false signals—the trade-off is between early entry and reduced risk.

Risk Management & Exit Strategy

When defining risk for bearish patterns, candlestick traders often identify where the setup would be invalidated—the level that would prove buyers remain in control. For this CNX engulfing pattern, stops would typically be placed just above the pattern's high at $41.49, with some practitioners adding a buffer to $41.60. A move back above that level would negate the bearish thesis entirely. Initial targets sit at prior consolidation zones: the first target at $40.07 (Thursday's support), followed by the Friday low at $40.59 as secondary resistance if that level is reclaimed. Longer-term downside objectives could extend to the $38 area where the stock consolidated in late November.

What to Watch Next

Confirmation requires today's (Tuesday's) close below Monday's $40.49 low, while a recovery back above $41.49 would invalidate the pattern and suggest the rally remains intact; today's session will determine which path unfolds.

Key Takeaways

Pattern Formation at Resistance: The bearish engulfing formed precisely at $41 psychological resistance on Monday, December 8th after a clean five-week rally from $33, with RSI at 79.17 and Stochastics at 89.65 signaling extreme overbought conditions heading into the pattern.

Assess Quality, Don't Just Recognize Shapes: Monday's $0.46 red body engulfed Friday's tiny $0.15 white body—a 3:1 size ratio demonstrating strong conviction from sellers and weak momentum from buyers at the highs.

Confirmation Protects From False Signals: Pattern confirmation requires today's (Tuesday's) close below $40.49; without this follow-through, the pattern remains unconfirmed and buyers could still reassert control above Monday's range.