Although ARIA was able to reverse the bearish implications of the March 25 Gravestone Doji by putting in an Ascending Triangle, and then breaking out above the 7.30 highs of that pattern (best seen in the intraday chart that I posted yesterday), putting a target of 7.65 IN PLAY, that was unusual. The Gravestone Doji more often forebodes some significant downside, a couple of examples of which we'll see below.
Monsanto (MON) took a significant beating in the first half of 2010. It rallied mid-summer, went into a Falling Channel, then broke out to the upside. MON moved along to the upside, then "Ye Dreaded Gravestone Doji" showed up, after a gap higher.
CAUTION...CAUTION...CAUTION...
Pfff-ff-ft...
Nice rally of about 50% in Joy Global off its February, 2010 low. JOYG rallied right through the Rectangle resistance, almost as though it weren't even there. The rally wasn't quite parabolic, but nearly so. There wasn't much backing and filling/base building, to establish solid support.
"Gee, I wonder where this rally is going to end!" Well-ll, we never can know that for sure until it unfolds, but when "Ye Olde Gravestone Doji" shows up after a nearly parabolic rally, it might be a good idea to take at least something off the table.
Remember "The Parabolic Rally...Parabolic Return" that we recently looked at in AMZN?
As I said, the rally wasn't quite parabolic, but the net effect of the selloff was the same as "....Parabolic Return." There was little support established on the way up to stem the tide of the selloff on the way down. The bulk of the selloff took MUCH less time than MON spent going up, which is fairly typical when stocks haven't done any nice base-building.
I think that it has to do with Newton's Law (3rd?) of Thermodynamics that is something like, "For every action, there's an equal and opposite reaction." I got a "D" in Physics, though, so don't hold me to that ;)
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