Final answer:
A dragonfly doji in a downtrend is interpreted as a bullish reversal signal, indicating that after initial selling pressure, buyers might be regaining control, possibly signifying a shift from a bear to a bull market condition.
Step-by-step explanation:
When a dragonfly doji occurs in a downtrend, it is interpreted as a bullish reversal signal. This type of doji, a candlestick pattern where the open and close prices are almost equal and the low is significantly lower, suggests that sellers initially drove prices down, but by the close, buyers were able to push prices back up to the opening level. This can be seen as a sign that the selling pressure is diminishing and the market may be ready for a reversal, hence the interest of bulls. Bull markets are characterized by rising prices, such as when the DJIA broke 4000 in 1995 and reached 12,000 in 2000. On the contrary, a bear market signifies declining prices, like in 1998 when the market lost 1200 points. A dragonfly doji after a downtrend might indicate bulls are gaining control from bears.