Stock Charts Still Smiling on Big Lots

by Serge Berger | March 20, 2014 8:14 am

Stock Charts Still Smiling on Big Lots

Closeout retailer Big Lots (BIG[1]) has been a promising performer ever since its big post-earnings rally earlier this month, and best of all for traders — according to the stock charts, BIG stock has plenty more upside potential in the near term.

beatthebell 185x185 Stock Charts Still Smiling on Big Lots[2]Prior to trading on March 7, Big Lots reported a 30% drop in fourth-quarter earnings on a 6.2% year-over-year decline in revenues to $1.64 billion. Worse still, Big Lots’ gross margin decline to 38.2% from 39.7%. Moreover, Big Lots expects earnings from continuing operations to fall in a range of $2.25 to $2.45 per share of BIG stock, the top end of which barely cleared analyst estimates for $2.44 per share.

So, with all of this news, one would have thought BIG stock was due to tank when trading started that day. Instead, traders looked the other way and lifted the stock to the tune of 23%.

But why?

The only two things I can point to was a couple of analyst upgrades after the report, as well as the announcement that the company would buy back $125 million in BIG stock.

BIG Stock Charts

When we now look at the below weekly multiyear chart of BIG stock, it is clear that it has done anything but “trend.” Yes, Big Lots shares bounced nicely off the 2009 lows (just like most stocks), but ever since 2010, BIG has given us choppy movement … though that has provided good swing trades.

Most recently, after BIG stock marginally undercut its November 2012 lows, it began to slow its downward trend until the post-earnings stampede completely changed the shares’ course.

One strategy that continues to work in Big Lots stock is to jump on the back of a one-day momentum bounce or selloff, and this trade currently has been set up once again.

big weekly Stock Charts Still Smiling on Big Lots
Click to Enlarge

On the daily chart, note that the March 7 rally came after the stock found good support at its 50-day moving average (yellow). That rally also blasted BIG stock past its 200-day MA (red), after which it settled into a two-week consolidation pattern also known as a bull flag. Given the upside momentum that the March 7 rally has brought to the stock, it now looks like Big Lots is ready to push well higher — a move that already began yesterday.

big daily Stock Charts Still Smiling on Big Lots
Click to Enlarge

If one were to apply the classic price target measurements on this bull flag breakout, then BIG stock would be targeting the mid-$40s. Because I don’t want to be greedy, however, I think a first upside target for the stock here is closer to the $39-$40 level, which also matches lateral resistance dating back to May 2013, after which the mid-$40s might be used as a target.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here[4]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. BIG: http://studio-5.financialcontent.com/investplace/quote?Symbol=BIG
  2. [Image]: http://investorplace.com/hot-topics/beat-the-bell
  3. Beat the Bell: https://order.investorplace.com/?sid=FQ8104
  4. Essence of Swing Trading e-book here: http://www2.marketfy.com/l/15492/2013-07-23/55sww

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