PCTY Forms Inverted Hammer at $112.61 — Testing Support After 20% Decline

Paylocity just printed an inverted hammer at $112.61 after falling 20% from its late-January highs. The question: Is this a bottom reversal signal, or just another pause before more selling?

Tuesday's session opened at $112.61—right at the low—and immediately rallied to $117.09 before pulling back to close at $113.82. That's a small $1.21 green body at the bottom of a $4.48 range, with a $3.27 upper shadow and no lower shadow. The prior session (Monday) closed at $112.31 after testing $111.91. Tuesday's hammer held that $112 support and closed higher on 1.5 million shares.

An inverted hammer forms when the market opens near its low, rallies sharply, then retreats to close near the opening. It looks bearish—bulls tried and failed—but after a significant decline, it's the first sign of buying interest. The rally to $117 proves buyers stepped in; the pullback to $113.82 shows they're not yet in full control.

Quality markers: The upper shadow should be at least twice the body height—here it's 2.7x. The real body sits at the lower end with no lower shadow. Both check the boxes. Volume at 1.5M was decent but not a spike.

Steve Nison: "On the inverted hammer session the market opens on, or near, its low and then rallies. The bulls fail to sustain the rally... Why should negative action like this be a potentially bullish reversal signal? The answer has to do with what happens over the next session."

Context amplifies patterns. PCTY dropped from $140 to $112 in two weeks—a steep 20% decline. RSI sits at 23.86 (deeply oversold), and Stochastics are extreme: %K at 6.05, %D at 9.04. The stock trades 21% below its 50-day moving average ($143.84). The $112-$113 zone has been tested multiple times, forming support. An inverted hammer at tested support with deeply oversold oscillators signals potential exhaustion.

Confirmation: A close above $113.82 (the hammer's close) or better yet, above $117.09 (the intraday high) validates the reversal.

Invalidation: A close below $112.61 (the low) means the decline continues.

Inverted hammers gain power from location and confirmation. A small body with a long upper shadow after a steep decline at support tells a different story than the same candle in a sideways range. PCTY's 2.7:1 shadow-to-body ratio, combined with RSI at 23.86 and 21% below its moving average, places this hammer exactly where you'd expect exhaustion. But confirmation is required—wait for the market to prove the bulls are stepping in.

The Candlestick Hit teaches pattern recognition through real-time market examples. This is educational content, not trading advice.