While the broader stock market has seen some wild swings over the course of the past two-and-a-half months, a select few stocks remained relatively unfazed by the madness, held their ground and now look eager to break higher.
One such stock is home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW).
At least in part supported by a strengthening housing market year-to-date, LOW stock tenaciously held support even during the broader market weakness in late August. Active investors could thus look to play this stock higher in an otherwise thinly supported stock market.
When Lowe’s reported its latest earnings in mid-August, profits came in more or less in line, but investors sold down the stock for two days, after which stabilization set back in. Relative-strength stocks tend to have quick and sharp corrective moves that then lead to a basing period and ultimately a resumption of the upward trajectory. This seems to be the case for LOW stock, despite the weakening and more volatile broader market.
LOW Stock Charts
If we look at the multiyear weekly chart of LOW stock, we note that the blue 60-week simple moving average acted as a good reference line since summer 2012, when it began holding as support. The stock then bounced off this moving average again in summer 2014 and yet again in late summer of this year.
For the time being, as long as this line holds, Lowe’s is supported.
As a side note, a simple way of using moving averages for reference lines is to find strongly supportive ones, for if and when they break, they should become better reference lines of resistance.
Moving on to the daily chart, note that we see a defined line of resistance has formed since the spring. As I often point out, the more often an area of support/resistance gets probed, the more powerful the ultimate breakthrough.
In the case of Lowe’s, LOW stock has also coiled up below this line over the past couple of weeks, and with Monday’s move, it marginally pushed past this line of resistance. It is unlikely that Lowe’s would be able to move higher should the broader market correct again, but the relative strength does favor playing it from the long side, particularly on dips.
Active investors could look to initiate partial long positions here for a first upside target toward the $78 area.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
