From the desk of Tom Bruni @BruniCharting
As we head into year end there’s a lot going on in markets, particularly on the macro and intermarket front.
With that being said, I gotta give the people what they want so today’s Chart of The Week is going to focus on a trade setting up in one of 2019’s most controversial stocks…Beyond Meat.
One of the primary ways we identify near-term trend reversals is by looking for stocks that experience a failed move paired with a momentum divergence. The momentum divergence signals to us that buyers or sellers are becoming exhausted and may be losing control, while the failed move provides us with a well-defined level to define our risk against and creates a natural buyer/seller imbalance by trapping sellers (or buyers) with a loss.
After a nearly 70% decline in Beyond Meat (BYND) since late July, we’re seeing this exact setup present itself. Here’s the daily chart showing volatility compressing over the last six to seven weeks and prices making new marginal lows as momentum diverges. This has created a very clear level of resistance near 76.50 that we can trade against.
Click on chart to enlarge view.
With just over 11% of its float sold short, there’s a lot of fuel in the stock and prices confirming this failed breakdown by closing back above 76.50 could be the spark that gets this move going.
Counter-trend trades are lower-probability by nature, but the bottom line is that our potential risk is a few percentage points and our potential upside is 70-80% if prices retrace 38.2% of their decline.
For us, that more than justifies putting it on and seeing how things develop. That may even mean having to get back in if there’s a whipsaw or two.
As long as prices are above 76.50 on a daily closing basis then the bias is to the upside and we want to be long $BYND.
Thanks for reading and please let us know if you have any questions!