The price development of CSW Industrials (CSWI) has been bearish lately and the stock has lost 6.9% over the past week. However, the formation of a hammer chart in its last trading session indicates that the stock may soon experience a trend reversal as the bulls may have gained significant control over the price to help it find support. .
While the formation of a hammer pattern is a technical indication of an approaching bottom with potential exhaustion of selling pressure, growing optimism among Wall Street analysts about the future earnings of this price maker Industrials & Coatings is a strong fundamental that improves the prospects of a trend reversal for the stock.
What is a Hammer Chart and how do I trade it?
It is one of the most popular price patterns in candlestick charts. A minor difference between the open and close prices forms a small candle body, and a larger difference between the daily low and the open or close forms a long lower wick (or vertical line). Since the length of the lower wick is at least twice the length of the real body, the candle resembles a “hammer”.
Simply put, during a downtrend, with absolute control of the bears, a security typically opens lower than the previous day’s close, and closes lower again. On the day the hammer pattern forms, maintaining the downtrend, the stock hits a new low. However, after finally finding support at the day’s low, some buying interest is emerging, pushing the stock higher to close the session near or slightly above its open price.
When occurring at the bottom of a downtrend, this pattern signals that the bears may have lost control of the price. And, the success of the bulls in preventing the price from falling further indicates a potential trend reversal.
Hammer candles can occur at any time – such as a minute, daily, weekly – and are used by both short-term and long-term investors.
Like any technical indicator, the hammer chart pattern has its limitations. In particular, since the strength of a hammer depends on its location on the chart, it should always be used in conjunction with other bullish indicators.
Here’s what makes the trend reversal more likely for CSWI
An upward trend in earnings estimate revisions that CSWI has been witnessing lately can certainly be seen as a bullish indicator on the fundamental side. Indeed, empirical research shows that trends in earnings estimate revisions are strongly correlated with short-term stock price movements.
Over the past 30 days, the current year EPS consensus estimate has risen 20.2%. This means that sell-side analysts covering CSWI overwhelmingly agree that the company will report better earnings than they previously predicted.
If that’s not enough, you should note that CSWI currently has a Zacks Rank #1 (Strong Buy), which means it’s in the top 5% of over 4,000 stocks that we rank based on market trends. revisions to earnings estimates and EPS. surprises. And stocks with a Zacks rank of No. 1 or 2 generally outperform the market. You can see the full list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>
Additionally, Zacks Rank has proven to be an excellent timing indicator, helping investors identify precisely when a company’s prospects are beginning to improve. Thus, for CSW Industrials shares, a Zacks ranking of 1 is a more conclusive fundamental indication of a potential turnaround.
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