Sunday Doji Dojo Analysis

Every Sunday, we will go through our list of dojis for the week and see if there is one stock worth taking a look at. This will not be any recommendation to buy or sell. Instead it will be more of a recap of how the stock performed after the doji alert was posted.

Our second doji of this series to be analyzed will be TXN (Texas Instruments, Inc.). This doji had a nice breakout before the broad stock market gain last Friday (June 5th). It was a similar breakout to what we covered in our first analysis with ALXN.

Here is the chart of TXN after Friday's close. One can see that the doji on June 1st was not much of an indicator of something going on. The following day on June 2nd had more of a meaning. On June 2nd, Texas Instruments broke through its 200 day moving average (red line) with strong conviction. The strong conviction is evident on the size of the candle moving upward from the doji on June 1st.

When strong conviction occurs, the following days will tend to follow the trend due to the momentum the conviction produces. Looking at what happens after breaking the 200 day moving average, the stock price continues to shoot higher ending with a shooting star doji on June 5th. The shooting star doji indicates a possible top and stop to the momentum that occurred. Obviously not a guarantee that this is a top, the trading this upcoming week will show if June 5th is indeed a top.

Lets take a deeper dive into what really happened on June 2nd. On June 2nd, the stock opened at 118.60 which was about 0.6% higher from the previous close. Within the first hour of trading that day, the stock price breaks through the 200 day moving average zone. Then after a very small pull back from 120 to 119, it was off to the races for the remainder of the day and gets another upward pop at the end of the day.

Another point of interest on June 2nd was the volume for the day. The volume on average was on par, but compared to the previous trading days, the volume was comparatively higher. On June 2nd, the volume was over 7 million, higher than any previous day going back to May 15th. May 15th was when the stock hit a support at around 106. Overall, the stock closed up about 3.4% on June 2nd.

What does the higher volume mean? It hard to pin the answer on just one thing, but it goes back to what was mentioned earlier about conviction. Buyers are bullish on this stock and believe in a nice breakout. Something to note, however, is that the volume on June 5th closed at 7.7 million. It could indicate that buyers are stepping off the bull train and waiting on their next chance to reload.

The thing about the stock market is that nothing is guaranteed. The charts and  technical analysis are nice tools to have in your toolbox, but when the market wants to go against your analysis, it will definitely have no problem in humbling a trader. See you next week!