Shares of LY Corporation Unsponsored ADR (YAHOY) have been struggling lately and have lost 5.1% over the past two weeks. However, a hammer chart pattern was formed in its last trading session, which could mean that the stock found support with bulls being able to counteract the bears. So, it could witness a trend reversal down the road.

The formation of a hammer pattern is considered a technical indication of nearing a bottom with likely subsiding of selling pressure. But this is not the only factor that makes a bullish case for the stock. On the fundamental side, strong agreement among Wall Street analysts in raising earnings estimates for this company enhances its prospects of a trend reversal.

Understanding Hammer Chart and the Technique to Trade It

This is one of the popular price patterns in candlestick charting. A minor difference between the opening and closing prices forms a small candle body, and a higher difference between the low of the day and the open or close forms a long lower wick (or vertical line). The length of the lower wick being at least twice the length of the real body, the candle resembles a 'hammer.'

In simple terms, during a downtrend, with bears having absolute control, a stock usually opens lower compared to the previous day's close, and again closes lower. On the day the hammer pattern is formed, maintaining the downtrend, the stock makes a new low. However, after eventually finding support at the low of the day, some amount of buying interest emerges, pushing the stock up to close the session near or slightly above its opening price.

When it occurs at the bottom of a downtrend, this pattern signals that the bears might have lost control over the price. And, the success of bulls in stopping the price from falling further indicates a potential trend reversal.

Hammer candles can occur on any timeframe -- such as one-minute, daily, weekly -- and are utilized by both short-term as well as long-term investors.

Like every technical indicator, the hammer chart pattern has its limitations. Particularly, as the strength of a hammer depends on its placement on the chart, it should always be used in conjunction with other bullish indicators.

Here's What Makes the Trend Reversal More Likely for YAHOY

An upward trend in earnings estimate revisions that YAHOY has been witnessing lately can certainly be considered a bullish indicator on the fundamental side. That's because empirical research shows that trends in earnings estimate revisions are strongly correlated with near-term stock price movements.