SJW (SJW) Forms a Hammer Chart Pattern: Time to Fishing the Bottom?

price direction for SJW (SJW) has been bearish lately and the stock has lost 8.8% over the past four weeks. However, the hammer chart pattern formation in the recent trading session suggests that the stock may see a trend reversal soon, as the bulls may have gained significant control over the price to help it find support.

The formation of a hammer pattern is a technical indicator of an approaching bottom with the possibility of a decline in selling pressure. But that’s not the only factor making the stock bullish. On the fundamental side, the strong agreement among Wall Street analysts to raise earnings estimates for the parent company of San Jose Water Co. It enhances the odds of a trend reversal.

Understanding the hammer chart and its trading technique

This is a common price pattern in candlestick charts. The small difference between the opening and closing prices forms a small candle body, and the higher difference between the day’s low and the opening or closing price forms a long lower wick (or vertical line). The lower wick is at least twice as long as the real body, and the candle resembles a “hammer”.

In simple terms, during a downtrend, with bears in absolute control, the stock usually opens lower compared to the previous day’s close, and closes lower again. On the day when the Hammer pattern is formed, while maintaining the downward trend, the stock records a new low. However, after eventually finding support at the intraday low, some buying interest emerged, pushing the stock higher to close the session near or slightly above its opening price.

When it occurs at the bottom of a downtrend, this pattern indicates that the bears may have lost control of the price. The success of the bulls in preventing the price from falling further indicates a possible reversal in the trend.

Hammer candles can occur in any time frame – such as 1-minute, daily or weekly – and are used by short-term as well as long-term investors.

Like every technical indicator, the hammer chart pattern has its limitations. In particular, since the hammer’s strength depends on its position on the chart, it should always be used in conjunction with other bullish indicators.

Here’s what increases your SJW’s conversion potential

The upward trend in earnings estimate revisions that SJW has seen recently can certainly be seen as a bullish sign on the fundamental side. This is because empirical research shows that trends in earnings estimates correlate strongly with near-term stock price movements.

The consensus earnings per share estimate for the current year has increased by 0.1% over the past 30 days. That means Wall Street analysts covering SJW are broadly in agreement about the company’s potential to report better earnings than they previously expected.

If that wasn’t enough, you should note that SJW currently has a Zacks rating of #2 (Buy), meaning it’s in the top 20% of the more than 4,000 stocks we’re ranking based on trends in earnings estimate revisions and EPS surprises. . Stocks with a Zacks rating of No. 1 or 2 are usually outperforming the market. You can see the full list of Zacks Rank #1 (Strong Buy) stocks today here >>>>

Furthermore, a Zacks Rank of 2 for SJW is a more conclusive indicator of a potential trend reversal, as the Zacks Rank has proven to be an excellent timing indicator that helps investors pinpoint precisely when a company’s prospects begin to improve.

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The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.