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Trade of the Day: Foot Locker (FL)

A technical breakout on high volume points to further upside ahead


For a fairly steady stock, Foot Locker (FL) has had a pretty volatile month. The athletic shoe and apparel retailer ran into some trouble in July, when CFO Lauren Peters sold 25,000 shares and one of FL’s directors offloaded a few thousand shares as well, shortly after the stock traded ex-dividend.

However, things are starting to look up for Foot Locker. Peers like Under Armour (UA), Nike (NKE) and Columbia Sportswear (COLM) have posted stellar quarterly reports featuring better-than-expected sales, revenues and forward guidance. Monday’s was a particularly good session for this group: Finish Line (FINL) gained 2.1%, Genesco (GCO) gained 1.4% — and Foot Locker itself rose 1.3% on higher volume.

At the Aug. 4 close, the Profit Scanner identified a bullish Symmetrical Continuation Triangle on Foot Locker’s chart. This pattern tells us that FL’s price has broken upward out of a consolidation period, suggesting a continuation of the prior uptrend.

From here, Profit Scanner expects FL to reach the $53-$54 level, or a rally of a little over 10% within the next 22 trading days. The pattern is characterized by a breakout on a noticeable increase in volume, and in Foot Locker’s case, it emerged on volume of 1.1 million shares.

A bullish Symmetrical Continuation Triangle shows two converging trendlines as prices reach lower highs and higher lows. Volume diminishes as the price swings back and forth between an increasingly narrow range, reflecting uncertainty in the market direction. Then well before the triangle reaches its apex is when the pattern is confirmed by the price breaking out above the upper trendline with distinctly higher volume.

As you can see in the 1-year chart of FL above, that pattern began to emerge along with the insider selling in the stock starting around July 11 and continued through its July 16 ex-dividend date, as well as the broad market sell-off on July 31. Now that Foot Locker is starting to break out along with several of its peers, this could be a great opportunity for a bullish trade.

The company will report Q2 earnings around Aug. 22, and analysts are expecting gains in both earnings and revenue versus the year-ago quarter — which could make this the catalyst that will push FL into the Profit Scanner’s $53-$54 target range well within the 22-day window of opportunity.

Foot Locker closed Monday at $48.73, just above technical support at $48.48. Resistance is about a dollar overhead, at $49.44. Looking at the price action on July 24, you’ll see some extra confirmation of the Symmetrical Continuation Triangle: FL broke just above that $49.44 resistance, which along with the volume trends supports the likelihood that the shares will continue upward.

For traders who like to set protective stops, Profit Scanner places a tight stop at $46.91 and recommends exiting any bullish trades on a close below that level. It also recommends that you keep an eye on any pullback below key support — especially if it occurs on high volume, which may signify a failure of the original bullish pattern. On the other hand, if a pullback occurs on comparatively little volume, it may just be a temporary pause before FL resumes its uptrend.

Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.

Article printed from InvestorPlace Media,

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