Titanium Metals Corp (TIE) is a recent pick of ours that has seen the stock gap and form a long-legged doji on the daily candlestick charts.
Further analysis would hint that the recent sell-off is due to investors taking profits following positive third quarter earnings. This confuses most investors because the conventional thought would be that a stock would rise in price following a great earnings report. However, the price of the stock had already risen and factored in this news. Does this mean we should worry? Well, not if the outlook for the following quarter is positive as well. Let’s take a look at how TIE did in the previous quarter:
>>>TITANIUM METALS Q3 REV $271.8M VS $190M
>>>TITANIUM METALS Q3 NET EARNS 29C VS 20C
>>>QUARTERLY PROFIT RISES 49%
Now, let’s determine what the charts are saying. I have circled the long-legged doji on the chart found below. The definition of the long legged-doji is a candlestick that is formed when the stock opens at a level, trades in a considerable trading range only to close at the same level as it opened. Long legged-doji’s become more powerful when preceded by small candles, as a sudden burst of volatility in a relative unvolatile stock, can imply a trend change is coming. (Source: StockTA)
So, there’s one sign that this pullback is temporary. What about the large gap downward? Once a stock has started to fill the gap, it will rarely stop, because there is often no immediate support or resistance. (Source: Investopedia)
Source: Bigcharts
In my opinion, there is still reason to be bullish here in the long-term. One small blip due to earnings should not derail the longer-term outlook of this play. However, you should always preserve your capital first and stick to the pre-determined stop loss just in case new fundamental developments change the technical atmosphere.
Good Investing…
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