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Since its March 22nd high of $12.70, shares of Sunopta (NASDAQ:STKL) Inc have been ominously quiet.Volume has dried up and the only press releases we have received contained minor fluff; completely devoid of any relevant economic developments. For some, this might be a cause for concern, but for seasoned STKL shareholders this is simply how the quiet Canadian company functions.

I originally profiled STKL after a March Forbes article, which highlighted several speculative alternative energy companies including STKL. Since then I have watched shares trade from a low of $11.80 to a high of $12.72 on meager volume. However, the past three trading days have once again caught my attention. First, volume (on the sell side) has become even more anemic at under 250,000 vs. the daily average of 600,000. Second, the last three consecutive trading days formed a bullish stick sandwich candlestick pattern.

Without getting carried away I will describe the sandwich and its significance in the STKL charting landscape.

Recognition

stkl-sandwich The pattern forms with three consecutive candle sticks. First, a black stick forms indicating a continuation of a previous downtrend. Next, a white stick prints which trades higher or up to the previous days high. Finally, a third black stick forms which closes parallel with the first day's close.

Psychology

The downtrend is effectively ended by the formation of the white candle stick. The stick opens, trades higher and closes higher than the previous down stick. This movement warns the bears that the downtrend is in fact nearing completion. The final day opens higher, trades lower, but is unable to break support formed during the previous two sessions. The bears take additional notice and begin covering positions adding to the buying pressure.

As with all technical trading, conformation is required to verify the formation. In this instance, conformation can come in the form of a gap higher, the formation of a long white candle stick or a higher close on the fourth day.

Significance for Sunopta

Observing the STKL 5 month daily depicts the importance of the current formation. Given that STKL is currently sitting at all time highs, it becomes crucial for STKL to build support prior to sequential moves higher. This helps the stock digest previous gains so that the uptrend is sustainable. It is also important to observe increasing volume during moves higher and not during periods of sell offs or consolidation.

STKLshort

One other interesting point is the incredibly high short ratio. As the graph above depicts the current short position is just over 6 million shares. This means that in the event of a rally, shorts trying to cover would need almost 14 days of average volume to successfully do so. Sunopta's first quarter earning release is on May 9th. This event might provide the needed rally to force the impending short squeeze.

Source: The Significance of Sunopta's 'Stick Sandwich'