Trade of the Day: L Brands (LB)

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Shares of L Brands (LB) are riding high after beating estimates for September sales growth, which in turn inspired an upgrade from Wells Fargo (WFC) analysts from “market perform” to “outperform.” Comparable sales at the retail company’s Victoria’s Secret stores rose 4% last month, while its Bath & Body Works stores enjoyed a 10% gain. Three other firms also upgraded LB shares around the same time, with price targets ranging from about $70-$80.

At the close on Monday, Oct. 20, the Profit Scanner powered by Recognia identified an Upside Breakout pattern in LB’s chart. The stock rose 3% on Monday to $69.33 on 1.9 million shares traded — and Profit Scanner predicts that a further surge of 3%-4% is just around the corner, sending LB up to a target range of $71.70-$72.40.

LB’s breakout from its previous trading range suggests that this retail stock is entering a new uptrend. As you can see in the chart below, up until now prices had been moving sideways between two parallel horizontal lines, which signified a pause or congestion area. Now that the shares have broken through the upper resistance line, it signals an end to the consolidation period and the start of the new uptrend.

Retail Trade of the Day: L Brands (LB)

Students of technical analysis have identified a few criteria for determining whether an Upside Breakout pattern is strong and reliable. One is its duration: the longer the trading range’s duration, the more significant the breakout. In this case, LB’s trading range lasted for about a month prior to Monday’s breakout. The trading range was also fairly narrow ($65-$69), which provides further support for the pattern.

The Profit Scanner identifies a support level for LB shares at $57.75, which would act as a “floor” at which buyers would step back in, considering the price to be a bargain. Many traders opt to set a protective stop just below support. In this case, Profit Scanner recommends a tight stop for the trade closer to the bottom of the recent trading range, at a close below $64.45.

In lieu of a bullish trade in the LB common stock, traders may want to consider purchasing the call options instead. The LB Nov. $70 calls are currently trading around $1.90 (with open interest of 2,375), while the LB Jan. $70 calls are going for about $3.00 (with open interest of 942). Both options have the potential for significant profits should LB reach the Profit Scanner’s $71.70-$72.40 price target.

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, https://investorplace.com/2014/10/retail-trade-of-the-day-l-brands-lb/.

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