1 Stock to Buy, 1 Stock to Short: Fashion Retail

Follow the trend to these two opportunities--one short, one long

   

The 2011 IPO Franceca’s Holdings (NASDAQ:FRAN) is a boutique-style retailer that has handily outpaced peer stocks like the more-established Coldwater Creek (NASDAQ:CWTR). Year-to-date FRAN has racked up over 9% gains compared to CWTR’s losses approaching 30%. I’m not much for fundamentals, but based on the intermediate-term patterns I saw for these names in the Trending123 Pattern Scan powered by Recognia, it appears that their respective trends are set to continue in the intermediate term.

Buy the Symmetrical Continuation Triangle

FRAN has developed a symmetrical continuation triangle pattern over the past 24 days. The price has broken upward out of a consolidation period, suggesting a continuation of the stock’s steady uptick.

A symmetrical continuation triangle pattern has 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, the price breaks out above the upper trendline with a noticeable increase in volume, confirming the pattern as a continuation of the prior uptrend.

Recommendation: Buy FRAN for a $32.50 – $33.40 target.

Short the Head and Shoulders Top

CWTR has developed a head and shoulders top over 90 days, meaning it will take about that long for the downtrend to play out. The price seems to have reached the end of a period of “distribution” at the top of a major uptrend; the break down through support signals a reversal to a new downtrend.

The head and shoulders top is created by three successive rallies in the price following a significant uptrend. The highest high (head) is in the middle, flanked by two lower highs (shoulders) at roughly the same level. Volume is highest as the price makes the first two rallies, then diminishes through the right shoulder. Finally volume surges as the price closes below the neckline (drawn between the two lows) to confirm the reversal.

Recommendation: Short CWTR for a $1.20 – $1.70 target.

FRAN releases earnings on June 3, 2013 and CWTR releases earnings on May 27, 2013 so make sure to be aware of that for your trading.

InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the OpenParabolic Options and Trending123.  Trending123 members receive access to the Trending123 Pattern Scan powered by Recognia free as part of their membership. For more information on which service is for you click here.


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