Friday, September 5, 2008

Bullish Reversal

Was chatting with my cousin during the trading hours this morning, and as we got to the market close, I was starting to notice a lot of bullish reversal candlesticks on many stocks I'm covering. Add to the fact that another bailout by the Feds (on FRE and FNM) may prop up the market for a short term bull run by "sentiments" that feel the government won't let a large player fail, and thus let the economy fail. My personal feeling? It's just delaying the inevitable... Anyways, a possible short term bull run...

Just take a look at the following charts:

Here's the chart for the Dow (DJII). Friday's candle formed a bullish hammer, indicating a reversal from the previous down days.

Now here's JASO, one of my solar holdings that I've done well on as I was able to snag this at its IPO. Here we see a piercing line pattern (not quite a bullish engulfing) for today as well.

Finally, LDK, another solar stock that I've been in and out of for some time. It's fundamentals are solid and with completion of their poly plant, it should "theoretically" start trekking back to its all time highs. But, this stock is hated by Wall Street, and they have done the best they could to keep it down for as long as they can. It's been marred by false allegations of poor accounting practices, but those were cleared long ago. Anyways, nevermind the fundamentals for now, technically we see here another bullish hammer, and almost looking like a dragonfly doji.
Glossary for those new to candlestick charting:

Dragonfly Doji: Dragonfly Doji Candlestick example image from A Doji where the open and close price are at the high of the day. Like other Doji days, this one normally appears at market turning points.

Hammer: Hammer Candlestick example image from Hammer candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during an advance, then it is called a Hanging Man.

Piercing Line: Piercing Line Candlestick example image from A bullish two day reversal pattern. The first day, in a downtrend, is a long black day. The next day opens at a new low, then closes above the midpoint of the body of the first day.

Engulfing Pattern: Engulfing Pattern Candlestick example image from A reversal pattern that can be bearish or bullish, depending upon whether it appears at the end of an uptrend (bearish engulfing pattern) or a downtrend (bullish engulfing pattern). The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day's body.

As always, the appearance of these alone should not indicate a reversal; the safe trade should be to wait for confirmation in the next candlestick (trading day). Beware of a "fake-out" on Monday, I usually do not like trading in the first 30 minutes of market open as the first 30 minutes tend to not be an indicator of where things are heading for the rest of the day (eg. today). So that "fake-out" may be a gap up in the opening, and fades into the afternoon; so beware of that if you are awaiting a bullish confirmation on Monday. Keep in mind Ike and Hanna are headed towards the U.S. over the weekend as well. Happy trading!

Disclaimer: Any stocks or equities mentioned may or may not be part of my personal holdings, and thus may affect my outlook on the mentioned stock. Any trades/investments made as a result of my comments are committed at your own risk. In short, you losing your own money is not my fault.

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