Catch a falling doji star in the charts of ANF & GOOG

A quick blog to show you a couple of recent examples of a bearish candlestick chart pattern called a doji star. A doji star (a special form of a shooting star) is a candlestick pattern made up of two bars: a bullish bar (typically white or green) followed by a doji (looks like a plus (+) sign). The two candles are separated by a gap. The formation typically occurs at the end of a lengthy bull run.

A doji forms when the bulls lose steam and the bears begin taking over. The day of doji formation is usually accompanied by higher than normal volume. If the following day opens below the low of the doji, this is a sign that the bears have taken control and for long investors to take defensive action.

The charts of internet search engine Google (GOOG) (who coincidentally today is celebrating its fifth birthday as a publicly traded company) and apparel retailer Abercrombie & Fitch (ANF) provide two examples of recent doji stars formations.

Chart of Google (GOOG)


You can see the doji star that formed at the beginning of July after a nice 150 point run-up. The stock pulled back to $400 support before reversing. Support and resistance levels for this issue are found at the $25 levels. Three days ago, Google broke $450 support and is heading towards its next support level at $425. If that doesn’t hold, $400 is its next stop.

Chart of Abercrombie & Fitch (ANF)


A clear doji star was put in four days ago on ANF. It has a history of making island reversals which is a set of candlesticks separated on both sides by gaps. Island reversals don’t necessarily signal a major reversal but they can, especially if they are part of a larger formation such as a head and shoulders pattern.

Abercrombie & Fitch is currently testing major support at $30. If that doesn’t hold, look for a move to $25 then $22.50 below that.*

I hope this mini instructional lesson will alert you to this major reversal pattern should it appear in the chart of one of your stocks. If it does, that’s a signal for you to closely monitor its movement and take steps to protect your position from potential loss. This can be accomplished by either selling some or all of your position or, if the stock is optionable, by buying protective puts.

*On a personal note, I’d be really happy to see this company go down the tubes because I think their business model stinks. Visit one of their stores and you’ll see what I mean. (See 6/17/09 blog for further kvetching about ANF.)

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