Hammering

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What is Hammering

Hammering is a quick sale and concentrated by speculators of a stock perceived to be overvalued.

BREAKDOWN Hammering

The market pounding is due to large sell orders or many small sell orders. In some cases, investors can collaborate on orders to lower the share price. Hammering the market usually occurs as a result of unexpected bad news, also known as an asteroid event, such as a terrorist attack.

Pounding can result from an asteroid event. Asteroid events are a type of event risk that companies find unprepared for. For example, if a public enterprise is dependent on a particular member of management or a board of directors, or on the sale of one or a few products, a sudden departure or market disruption could reduce sales and share prices. Asteroid events can occur in small pharmaceutical or biotechnology companies depending on the success of clinical trials, FDA approval and sales of single drug products. Other potential asteroid events are restructurings, mergers and acquisitions, bankruptcies, spin-offs or takeovers.

Institutional investors can try to profit from an asteroid event if they perceive it as a temporary mispricing of stocks. Such a strategy exploits the downward trend in the stock price due to a sudden or dramatic change. Market analysts examine factors such as the regulatory environment and the possible synergies or benefits of the changes, and then set a new target price for the stock. An investment decision would then be made based on the current share price and the target price. A correct call could lead to profitable trading; an incorrect call could cause losses.

For example, when an asteroid event such as a hostile takeover occurs, the company’s share price is likely to fall. Research analysts aim to predict whether the takeover will take place, its effects and duration, and their implications for earnings and share price. If the takeover fails, the stock price could go up or down depending on market sentiment. Analysts could estimate a stock price range or select a single price target for each. Investors would buy or sell shares of the target company based on their trading outlook and the stock price.

Explanation of hammer candlestick chart pattern

In technical analysis, a hammer candlestick model is an indicator that can appear after a prolonged downtrend in the stock price. During the period of the hammer candlestick, a stock or an index undergoes a strong sale. It recovers later and closes near the unchanged or higher mark. In this case, the market can be considered as hammering a bottom. When combined with moving averages and indicators, such patterns can warn of significant trend reversals.

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