Of course, it helps when the broader market lifts most things in sight and the consumer discretionary sector — of which home furnishing stores are a part — breaks out to fresh all-time highs.
In these types of environments where most stocks rise, the name of the outperformance game is “rotation” — namely, you must continually rotate along with the market to the sectors and industries that are next to pop.
Last week’s price action in the home furnishing stores has at least a minor group rotation written all over it and brought BBBY stock to a spot where it could really accelerate higher from.
First, a multiyear perspective: After a wildly sharp run higher off the 2009 lows, BBBY topped in June 2012 and settled into a clear and healthy consolidation pattern. Through this long-term point of view, Bed Bath & Beyond has consolidated both in time and in price. With this year’s rally, BBBY has slowly worked itself back up to (and marginally above) the June 2012 highs.
This continues to be constructive work through a technical lens until such time when larger divergences between momentum and price occur. But it’s not yet the case.
On the daily chart, we see that within the consolidation phase that has been taking place since BBBY reached its August high, Bed Bath & Beyond’s stock has been coiling up in an even tighter range since late September — right underneath the year-to-date highs.
Momentum — as measured by the stochastic oscillator — is showing some negative divergence, but because the stock hasn’t recently made a new high, this actually favors the odds of BBBY moving higher still.
Barring any nasty bearish reversal, BBBY — along with its peers — looks to have higher prices to test into year’s end. From a risk management point of view, don’t enter this trade before BBBY records a daily close above $78.50.
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.