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Morning Star Doji Pattern Reflects Bear Market Reversal

David Becker
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Morning Star Doji Pattern Reflects Bear Market Reversal

Stocks opened on Tuesday in a manner than was consistent with a bear market bounce, moving higher throughout the early trading session on the heels of Monday’s strong bounce. The better than expected retail sales data release on Monday gave bulls confidence that there might be some life in this rebound, but that was quickly curtailed by powerful selling.

The momentum stocks in the Nasdaq started to tumble during the mid-morning and by noon the Nasdaq was down nearly 1.5%, as investors rekindled their disdain for momentum stocks which were hammered. Bio-tech stocks along with social media stocks were hit hard, pushing the technology index into bear market territory.

As hope seemed to be lost, investors used the 200-day moving average as strong support and created a doji pattern, which is a candle stick pattern that is generally considered a reversal pattern as it reflects indecision. An open above the current close will create a morning star pattern which does not need any additional confirmation and is considered a strong reversal pattern.

The combination of the potential morning star, with the support of the 200-day moving average, should help the Nasdaq composite regains some of its mojo as it attempts to move higher after moving into bear market territory. A correction of 20% or more is considered a bear market correction which is what has occurred to the Nasdaq since beginning its decline in late February.

Bio-tech stocks as well as, high flying momentum stocks such as Twitter (NYSE:TWTR) , rebounded on Tuesday, which is a positive sign for stocks. April is generally considered a strong month for stocks, and over the past 20-years US stocks have been higher in April 75% of the time.

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