Hi OrionX,
CONCLUSION
Friday's possible hanging man has me mildly concerned and I'll be watching Monday's action closely for confirmation. Otherwise, all other candlestick indicators are bullish.
Before going into the candle analysis, let me say that the meaning of a candle depends in part on the existing trend of a stock. The same candle can be bullish, bearish or neutral depending on the existing trend. And right now I have great difficulty interpreting FORE's "existing trend". Is it upwards or is it sideways? It is difficult to say it is in an uptrend when Friday's close was the first close above the tall white "buyout" candle from 12 days ago! On the other hand, Friday's close is a ~40% improvement over the low (13) in the same 12 day time period so it is just as difficult to call the existing trend sideways. Then again, if we go back about 20 days, we will see only a small change (1/2point) between the close then and the close now.
Candles:
Friday's candle could be interpreted as a "hanging man" (market opens at or near the recent highs, then sharply sells off, and then rallies to close at or near highs). A "hanging man" candle after a rally tells you the prior move may be ending. Why would Friday's price action be considered bearish you might ask? Because, after a period of increasing prices, it shows vulnerability to a fast break once it started to sell off - it's a sign the price has risen to the point where the buyers have been exhausted.
CAUTION: We've seen this erratic fast break price action all week long from FORE, as well as the general market, yet both maintained their upward bias throughout.
CONFIRMATION: It is especially important to wait for bearish confirmation following the hanging man.
Confirmation can come in either of two ways. One, if the stock opens gap down the next day, it is a strong signal the hanging man will be a top. The larger the gap, the more likely. And two, a black candle on Monday with a close below Friday's open would also signal a top. In this case a gap down is not necessary.
WHAT IF THE HANGING MAN IS NOT CONFIRMED AS A HANGING MAN TOP?
There are several different possible interpretations of this week's candles that are quite bullish.
The doji on Wed/Thu were signs of resistance (dojis are days where the opening and closing prices are the same). And when they were breached, as they were by Friday's close, they usually turn from resistance into a support zone.
The gap on Friday was also bullish (though it was common to most stocks Friday). The japanese refer to gaps as windows. A window is a gap between the prior and current session's price extremes. Windows are important trend continuation signals. Thus, a window in a rally implies a further price rise.
Did Friday's candle really create a window? Technically no. The high price extreme on Thursday was 18 1/8 (closed @16 5/8) while Friday's opening was only 17 1/2. A real window at Friday's open would have given us a technical buy signal, known as the high-price gapping play pattern.
Normally, you would NOT combine 2 daily candles but I think there is justification to do so with events of THU/FRI. Thursday's late selloff, combined with Friday morning's offsetting gap up had EVERYTHING to do with the pending employment report.
Thus, if you combine the candles for THU/FRI and interpret them as one, you have a tall white candle, which completes at least two very bullish formations.
With the FIRST close to the upside of the original tall white candle that started this rally 12 days ago, we have the long-awaited confirmation of that candle with a pattern known as the 3 methods rising - which is very bullish.
Also, since this tall white candle follows immediately after a doji (on Wednesday), it forms a bullish engulfing pattern.
There you have it. Are you buying, selling, or holding?
ed |
