HG,
You're right. The candle from yesterday is usually a reversal candle when it occurs after a series of candles in the same direction, and is particularly reliable when the volume is big. In this case, the volume was only about average. Also, that candle was formed in an area of critical resistance, at the horizontal 100 and 200 day emas.
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Nevertheless, CPST gapped open very strongly above this area, and at the moment is up about 9% on the day.
Although your assessment is correct, and the majority of the time a candle like that in a chart like CPST's would signal a downside reversal, there is an important lesson here I think: it is not prudent to anticipate a move; one would be well-advised to let the stock make it's intentions plain before committing. So in this case, if I were thinking of shorting CPST, my entry would have been 1/16 below the low of the day from yesterday's Doji. Obviously I would never have entered, using this criteria (though an entry is still possible if it can trade that low). But I like to see that a stock can trade lower than the previous day before I enter a short. The same is true in reverse with a long.
BTW, there are other reasons why I would not short CPST at this time. For one thing, it is one fantastic company, in the right sector, at the right time. I like to look for shorts in overvalued companies with rotten charts, in sectors with declining interest.
JMVHO.........
WS |
