Could a single candlestick pattern signal a dramatic shift in Palantir Technologies Inc.‘s PLTR market momentum? While many dismiss technical analysis as mere chart-watching, a surprising reversal might indicate a pivotal change in the stock’s trajectory.

Trading in Palantir shares was subdued on Thursday, coming after Wednesday's sharp reversal in price action.

The stock has been named our "Stock of the Day" after forming a classic hammer pattern on the chart — a bullish signal that often points to potential upside ahead.

Technical analysis has a dubious reputation. But unfortunately, it deserves it. Many technical analysts mindlessly look for patterns on charts without understanding the trading and price action that create these patterns.

When the leadership of a market is changing from bulls to bears or bears to bulls, the price action can show up on a chart as a reversal pattern.

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If the change in leadership takes place over an extended time, a ‘rounded' top or bottom pattern may appear. If the reversal takes place after support or resistance has been tested, a ‘double' or ‘triple' top or bottom pattern may form.

Sometimes, the leadership can change from bears to bulls in just one day. This may have occurred in Palantir yesterday.

In candlestick charting, when the closing price is higher than the opening price, the candle is blue. The opening price is at the bottom of the rectangle, and the close is the top of the rectangle.

The low trade of the day is marked by the so-called ‘wick.’ It is the vertical line below the rectangle.

Palantir opened at $152.30 and then it dropped all the way down to $142.34. But by the close, the buyers overpowered the sellers. They pushed the price all the way up to $156.01 at the close.

This price action created something that looks like a hammer on the chart. But the name of the pattern isn't important.

What is, is that the pattern is a graphical illustration of a potential leadership change in the market. There is a good chance that the bulls have taken control from the bears in Palantir. If this is the case, the stock may be about to move higher.

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Photo: Michael Vi / Shutterstock