Dragonfly Doji

The Dragonfly Doji is a significant bullish reversal candlestick pattern that mainly occurs at the bottom of downtrends.

The Dragonfly Doji is created when the open, high, and close are the same or about the same price (Where the open, high, and close are exactly the same price is quite rare). The most important part of the Dragonfly Doji is the long lower shadow.

The long lower shadow implies that the market tested to find where demand was located and found it. Bears were able to press prices downward, but an area of support was found at the low of the day and buying pressure was able to push prices back up to the opening price. Thus, the bearish advance downward was entirely rejected by the bulls.

Dragonfly Doji Candlestick Chart Example

The chart below of the mini-Dow Futures contract illustrates a Dragonfly Doji occuring at the bottom of a downtrend:

In the chart above of the mini-Dow, the market began the day testing to find where demand would enter the market. The mini-Dow eventually found support at the low of the day, so much support and subsequent buying pressure, that prices were able to close the day approximately where they started the day.

The Dragonfly Doji is an extremely helpful Candlestick pattern to help traders visually see where support and demand is located. After a downtrend, the Dragonfly Doji can signal to traders that the downtrend could be over and that short positions should probably be covered. Other indicators should be used in conjunction with the Dragonfly Doji pattern to determine buy signals, for example, a break of a downward trendline.

The bearish version of the Dragonfly Doji is the Gravestone Doji (see: Gravestone Doji).

Now look at the INVN chart. However, the Dragonfly Doji appears in an uptrend, not a downtrend, not likely to signal a trend reversal. Interesting to see what happens in the next...

If you like the Doji, check out the $RUO and $RDG on stock charts today ( Russell 2000 growth and Russell Mid Cap growth).  Some times it pays to think contrarian.  The CNBCs will tell you small and mid are done and large and value are back in vogue, if you believe in Dojis it says differently.  I think the market remains choppy for 3-6 months but we are in a bull market until the FED raises rates and not reduces the taper.

Lots of growth stocks have been pummelled.  If you have a LT horizon look at some high quality Biotechs like BMRN, NPSP, ALKS and SLXP which are all offering up what look like great buying opportunities.  Charts are so bad, they are good.  :High quality tech names like ULTI and CNQR also on sale as is our favorite NQ which is a steal at these levels.  In consumer I would recommend names like AWAY, LGF and LL as attractive here as well.  Chemicals still look good and charts are suportive.  Take your pick:  CE, ALB, EMN or HUN.  I would love to hear from SHU members with insights on the chemicals aside from the macro play.

Adding RPM to the chemicals BUY list here.  More of a workhorse but 2/3 commerical exposure and chart is very supportive of a continued move up.

Adding RPM to the chemicals BUY list here.  More of a workhorse but 2/3 commerical exposure and chart is very supportive of a continued move up.