Google Trying To Hammer Out Bottom

08/15/05 10:41:45 AM

by Arthur Hill

After a bearish candlestick reversal in July and a decline below 285, Google is trying to hammer out a bottom and a bullish reversal.

Security: GOOG
Position: Hold

The stock formed an evening doji star in July. These three-candlestick patterns are bearish reversals that do not require confirmation with further downside. After surging above 310 with a white candlestick, the stock continued higher with a gap, then suddenly stalled to form a doji (red arrow). This showed indecision and the stock gapped down the very next day. Even though the black candlestick formed a long lower shadow, the essence of an evening doji star was clear and the stock declined further. See Figure 1.

Figure 1: Google formed an evening doji star in July.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

The 62% retracmement mark offered a brief respite around 287 and the stock continued below 285 in August. A hammer formed on Thursday (August 11), and this was followed by an engulfing line on Friday (green oval). The hammer is a bullish candlestick reversal and the bullish engulfing shows buying pressure after a weak open. Note that the stock opened below the prior close and closed above the prior open. Both the hammer and the bullish engulfing require confirmation with further strength.

Candlesticks can offer a short-term clue, but it is wise to step back and look at the larger pattern. The stock formed a falling wedge over the last three to four weeks. These are typical for corrections. However, the upper trendline has yet to be broken. A break above the upper trendline would be positive and further strength above 300 would break the prior high. Such a move would call for a continuation of the prior advance and project further strength above the July high.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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CANDLESTICK CHARTING

Google Trying To Hammer Out Bottom

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