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Japanese Candlestick Analysis of Cree, Inc. Stock Prices - CREE
From the Report Dated 11/12/2010: The candle for11/12/2010 was a Shadowed short body coming after the prior day's Star medium body. A shadowed session is one with an open-to-close range that is completely within the bounds of the previous day's open-to-close range. This indicates a lack of direction in the market for this issue.
Candlestick charting has a literature going back several centuries. The names given to various candlestick patterns are quite fanciful, and might suggest fortune telling or tea leaf reading rather than a scientific analysis. However, the candlestick is merely another form of the high-low-open-close chart, and the colorful terminology may serve as an aid to the recognition of significant patterns. The effect of the candlestick figure is to emphasize the significance of the range between the opening price and the closing price, called the body of the figure. Whether such an emphasis is warranted, may be questionable. Now that markets are 24 hour, the opening or closing price on some particular exchange, such as the New York Stock Exchange sessions plotted here, is not the significant psychological event that it might have once been, except perhaps to day traders on the particular exchange.
White bodies indicate the closing price was higher than the opening price. When the longest wick or shadow (the range) is in a direction opposite to the price movement the shadow convergence is negative, giving mixed signals. The shadows are drawn in red when this is the case.
The weekly chart here, exhibits less randomness or noise than the daily chart above. Despite all the memorable and fanciful names for these patterns, they boil down to just a few fundamental attributes of the price series. The Body of the candle corresponds to the issue's movement during the session, and the Shadow to the range. The Shadow Skew (the degree that the shadow on one end is longer than the other) may indicate probing, or the so called "line of least resistance". Probing of the line of least resistance is done by traders who are trying to dump ("distribute") or sneak into ("accumulate") a large position. If they were to hit the market with a large order, the reaction would prevent them from getting a good price. So they dribble out the transactions a little at a time, stopping when the price moves against them. A "Hanging Man" (a short body at the top of the range with a long shadow on the low side) is viewed with dread at the top of a rally, because the long tail may indicate somebody trying to quietly sell out.
The "Doji" (where the open and close are nearly the same) is said to indicate "lack of direction" and so might be a harbinger of a switch in trends.
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