Before we dig in the following information should not be considered investment advice and I have no positions in any names that will be mentioned in this note. But I wanted to convey how powerful the signal of the doji candle can be at potentially calling near term tops and bottoms. When it presents itself there is a good change that a change in the prevailing direction is about to occur. When it happens after a prolonged downtrend it could signal selling pressure is abating and conversely it may state after a long uptrend that the instrument may be ready for a healthy pause. Below is the WEEKLY chart of the Nasdaq that registered back-to-back doji candles near the very round 10000 number after a swift rejection from 16000 in late 2021. So far it was an accurate call that a short term bottom was in place.
Below is the daily chart of TSLA, a widely followed name in not just the auto space, but the market in general. This is an example how the doji candle called a short-term top after doubling between the rough round numbers of 100-200. We know the markets had a very healthy January which lifted most boats and TSLA was no exception. The doji candle on 2/9 should have in the very least had shareholders thinking of shaving some of their holdings. It had after all witnessed a spirted run and was nearing a downward sloping 200-day SMA. Notice as the Nasdaq has climbed back above its January peak, TSLA remains well below it.
Doji candles are rare on most time frames, but on WEEKLY and MONTHLY charts even more so. Below we look at the semiconductors which for the most part have done a lot of the heavy lifting for a resurgent technology space in 2023.
With all the craze and fascination regarding the AI space a software name at the forefront with a clever symbol was subject to the doji candle. This happened not once but twice on 2/6 and then again on 4/4 which saw the stock undergo a PRICE hiccup immediately thereafter. During February and March it traded around the rough 20-30 round numbers and the April doji saw the PRICE of AI decline by 50% until it found some comfort near its 200 day SMA.
And for the last example we peek at the WEEKLY chart of CEG. This is a utility play which has a footprint in the nuclear arena. This name started trading in early 2022 and enjoyed a very nice move from below 40 to almost touching the very round par number in Q4 2022. There was no doji candle to signal topping action but recently we saw consecutive WEEKLY dojis candles after a 20% decline and that seems to have given the stock some life. It has recaptured its 50 WEEK SMA and is now higher over the last 5 weeks. A potential double bottom is in place but of course nothing is guaranteed.
Originally Posted May 22, 2023
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