TAL Education’s (TAL) stock has been struggling lately, losing 6.8% over the past week. However, a glimmer of hope has emerged in the form of a hammer chart pattern that appeared in its last trading session. This pattern could indicate that the stock has found support and that bulls are successfully countering the bears, hinting at a potential trend reversal.
While the hammer chart pattern provides a technical clue suggesting a possible bottom and exhaustion of selling pressure, it’s important to consider the fundamental factors at play as well. The recent surge in optimism among Wall Street analysts regarding TAL’s future earnings provides a strong foundation for a bullish outlook.
Understanding the Hammer Chart
The hammer chart pattern is a popular candlestick pattern. It is characterized by a small candle body, representing a minor difference between the opening and closing prices, and a long lower wick (vertical line) that signifies a significant difference between the day’s low and the opening or closing prices. This long lower wick, at least twice the length of the candle body, gives the pattern its name, resembling a hammer.
The hammer pattern often forms during a downtrend when bears have control. The stock typically opens lower than the previous day’s close and continues to decline. However, a key feature of the hammer pattern is that the stock reaches a new low for the day before finding support. This support leads to some buying interest, driving the stock back up to close near or slightly above its opening price.
This upward movement against the downtrend indicates that the bears might be losing their grip on the price. The bulls’ success in preventing further decline suggests a possible reversal in the trend.
Factors Increasing the Odds of a Turnaround for TAL
Beyond the technical analysis, there are several fundamental factors that support the possibility of a turnaround for TAL. A significant upward trend in earnings estimate revisions is a bullish sign. Empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Over the past 30 days, the consensus EPS estimate for the current year has increased by 82.4%. This indicates a widespread agreement among sell-side analysts that TAL will report better earnings than previously anticipated.
Furthermore, TAL currently holds a Zacks Rank #2 (Buy), placing it within the top 20% of over 4,000 stocks ranked based on earnings estimate revisions and EPS surprises. Stocks with a Zacks Rank #1 or 2 typically outperform the market. This Zacks Rank #2 designation for TAL Education provides further evidence of a potential trend reversal, as the Zacks Rank is known for its effectiveness in identifying precise moments when a company’s prospects begin to improve.
The combination of the technical hammer chart pattern and the positive fundamental factors suggests a potential shift in momentum for TAL Education. This development makes it an intriguing stock to watch closely for investors seeking a potential turnaround play in the education services sector.
