Yesterday's pop over 20 and subsequent weakness resulted in a "gravestone Doji:
What is a Gravestone Doji?
A gravestone doji is a bearish reversal candlestick pattern that is formed when the open, low, and closing prices are all near each other with a long upper shadow. The long upper shadow suggests that the bullish advance in the beginning of the session was overcome by bears by the end of the session, which often comes just before a longer term bearish downtrend.
A gravestone doji is a bearish pattern that suggests a reversal followed by a downtrend in the price action.A gravestone pattern can be used as a sign to take profits on a bullish position or enter a bearish trade.The opposite of a gravestone doji is a dragonfly doji.
What Does a Gravestone Doji Tell You?
A gravestone doji pattern implies that a bearish reversal is coming. While the open, low, and closing prices don't have to be equal for the pattern to be valid, there should be a relatively small tail, else the pattern could be classified as an inverted hammer, shooting star, or a spinning top. The market narrative is that the bears attempt to push to new highs over the session, but the bulls push the price action to near the open by the session close. So the long upper shadow represents the bulls losing momentum.
While the gravestone doji can be found at the end of a downtrend, it's more common to be found at the end of an uptrend. Although the gravestone doji is popular, it suffers from the same reliability issues as many visual patterns. Generally traders will not act on a gravestone doji unless the next candle provides confirmation of a the reversal.
Trading the Gravestone Doji
Traders will often exit long positions or initiate short positions after identifying a gravestone doji pattern, although it's important to use this candlestick pattern in conjunction with other forms of technical analysis as a confirmation. Often times, traders will also look at the volume associated with the session, as well as the previous sessions' activity, as potential indicators of the reliability of the pattern.
Its been a long run and the market is overbot. I'm expecting a reset into the December time period ,where I hope to see new highs.
Cohu is justifiably finding some resistance at $20.00.
As the above trade suggestion indicates watching volume on the day after is important.
I'm in for the much longer and await better earnings as we enter 2020.
In between it is nice to have a cushion above cost. I suspect we're due for a 50% to 62.18% retrace.
We've recovered nicely and it now will take better earnings and improved guidance to move Cohu.
Hold with confidence for a much greater advance in the future!