From the desk of Tom Bruni @BruniCharting
Earlier this year I discussed what I look for when picking a bottom in a stock using Twitter as an example. Today I want to look at The Container Store because it’s exhibiting similar characteristics that suggest the stock has begun a new long-term uptrend.
Below is a 4.5-year daily chart of The Container Store showing its roughly 90% decline from its post-IPO highs. After its massive decline, the stock became rangebound between 3.50 and 8.50 beginning in 2016 and remained so until just last week, basing and waiting for a resolution to establish the next long-term directional move.
Click on chart to enlarge view.
An upside earnings surprise was the catalyst to help prices break out of its range. This breakaway gap above resistance signals an overwhelming amount of demand for the stock, which continued with three strong days to the upside. With 14% of the float short prior to the event and all of the (4) analysts covering the stock rating it a hold, negative sentiment and positioning certainly contributed to the recent move. While current prices don’t offer the best reward/risk scenario, we want to be buying any weakness in the stock toward 8.30, as our initial price target is near 15.50.
The Bottom Line: The Container Store has rallied roughly 70% in 3 days, but the conditions above suggest it’s shifted from range-bound to a long-term uptrend. It’s a great real-time example and trading opportunity.
While it may seem counter-intuitive to become interested in a stock after it’s rallied so aggressively in a short period, there’s been tremendous opportunity cost in trying to anticipate the long-term trend rather than waiting for confirmation. Technical Analysis is all about participating in the relevant trend for your timeframe, so now that an intermediate / long-term trend has been established we can step in and catch the majority of it.
Thanks for reading and let us know if you have any questions!