Do you know what a tombstone doji is?
Discussed in this article: Electronic Arts Inc. ( $EA )
I want to look at tombstone dogi’s, gravestone dogi’s, bad things happening here, on Electronic Arts ( NASDAQ:EA ). I’m going to start with a couple of coal names that I was talking about yesterday in our members Strategy Session, pointing out these little dogi’s, where typically it’s a gap open, in fact necessarily it’s a high gap, gap up and then a trade to the upside, the longer the better, but a trade to the upside and then a trade back down to where the stock opened up, must be very, very close to the bottom of the range, the intraday range.
And so what does this signify? It signifies basically a climax in the uptrend. So we’ve got this uptrend here and then we see on a big volume day, very large volume day, a lot of buyers pushed this stock up at the open, they keep buying, buying, buying, and there’s not enough aggressiveness out there among the buyers to keep the stock up. So instead that buying pressure kills itself, hence tombstone doji, and the stock starts to fall and winds up closing near the low of the day. It indicates an intraday reversal, it’s an exhaustion, it’s the last of the Mohicans. What tends to follow is a pullback; it’s a reversal of the trend.
Now, the reason I wanted to cover these coal names is because it’s not quite correct here. You look at this gravestone or tombstone doji as the end of a trend, as the end of an uptrend. But here, the stock has been in a downtrend. So this is just really a counter trend rally, it’s not that big of a deal, but when you see something like this at the key moving average, you know what? It basically means the same thing and that is, don’t buy me right here. So these, Peabody Energy ( NYSE:BTU ), a couple of the others, Alpha Natural Resources ( NYSE:ANR ), and Walter Energy ( NYSE:WLT ), you see the same thing.
Now I want to get to Electronic Arts ( NASDAQ:EA ). This is different, this didn’t hit against a key moving average or anything. This is within an uptrend, can you see the difference? Downtrends, these little snappers here, these little snap backs, and then you’ve got Electronic Arts ( NASDAQ:EA ), up, up, up, up, strong earnings, stock closed yesterday at 23.83, opened today at 25.25, so it opens up $1.50 higher, trades all the way up into 27.00 and then closes down near the bottom of the range. Huge massive volume; this is a buying climax; this is a classic tombstone doji.
So what do you want to do? If you happen to be long this stock still, I would suggest selling it. Now, I’m not making some big, monster trading call saying that Electronic Arts ( NASDAQ:EA ) is going to go back down to 12.00. I’m just saying this part of the trend is over, you need to just manage your risk, there’s risk, there’s more risk of downside than there is risk of you missing on the upside, and I’ll show you exactly why.
Let’s just go to a five-minute chart, you’ll see; the stock gapped up in the morning, it was actually pretty impressive when you think about it, because the stock gapped up in the morning, trended down, but the reversal didn’t come right here, first thing in the morning. It actually started trading up into the noon hour, and then finally just kind of trickled off and then ended on, heavy volume, which it typically does. So this really was literally an exhaustion, this was not really so much of an event, it was just a process over a couple hours where the stock just kind of drifted up, kind of listlessly, unless you were short, then it was really fast, and then it just started fading.
So I think you want to stay away from Electronic Arts ( NASDAQ:EA ). The main reason I wanted to show you this is because I want to help you with your timing. Timing is everything, whether you’re doing stand-up comedy or trading, you’ve got to have good timing. So right now, when you see these tombstone doji’s, particularly when they’re at the end of an uptrend, or within a big uptrend, which is the classic signal, you want to stay away from them, you want to be taking profits, maybe short, but that’s not what I would be doing here.