Today, I thought we would look at a trade setup in Bed, Bath and Beyond (NASDAQ:BBBY). As stocks are continuing to make higher highs versus their 2012 highs, BBBY has actually diverged to the downside.
The first thing you note on the chart that I show you in the video is that, of course, the stock did rally off the late-2008/early-2009 lows with the broader market and did stage a very sharp rally. What did occur then, however, is as the stock went above and vertical a little bit out of its longer-standing channel, it broke down and made a lower high. If you don’t see it exactly on the chart, it doesn’t matter; the point more is that the stock made a lower high and, essentially, now is trading below the longer-standing uptrend. To some extent, BBBY is basing here and trying to retest its move from the bottom.
If we move closer into the daily chart, keeping mind that we are trading and have broken below the longer-term trend, a lot of times that is the first move. It’s first a sideways move that we need to see before we see a trend to the downside. In this case, however, while that’s very much a possibility, my point today on BBBY more is that the stock is coming to a very critical level.
The stock is currently trading some sort of a confluence zone where the 200-day moving average, as noted by the red line on the chart in the video, is coming in with a little bit of resistance, although, again, the simple moving averages of the 50-, 100- and 200-day haven’t really worked great for reference sells in this stock.
Nonetheless, what we have right now is a confluence zone of potential resistance made up of, one, the 200-day moving average, two, we’re coming in an retesting the bottom end of the longer-term trend from the bottom, and three, we are moving into a Fibonacci retracement support between 38.2% and 50%, or halfway, retracing the latest move to the downside back up. So, at the very latest, somewhere near $63, which is just another point or so away, the stock should be moving into resistance.
At the same time – and that’s the critical thing about the stock here in the meantime – BBBY really is coming into a potential area where it’s basing and putting in a bullish reversal. The way we look at this is very simply by the lateral breakout the stock has staged last week. The breakout hasn’t been very clean, but it is basing above about the $60.50 area.
There are earnings coming out around April 4, so there are a couple weeks before earnings come in. My point is I would be very careful with a breakout to the upside in this stock. If it gets past $63 and it’s basing, then that’s a different story. But I would be quite wary of this breakout in the meantime.
I wouldn’t chase BBBY. I would make sure that you watch the stock and maybe wait for earnings to come in, but the point is the stock is at a critical level and anything above $62 to $63 might be a potential area to get long. I wouldn’t chase this potential breakout quite yet.
In this video, I show you have different time frames line up and appear as potential warning signs for a breakout that, otherwise, is quite obvious. If we weren’t looking at the longer-term trend, I would say this break out here is quite obvious for a trade.
However, for more speculative traders, if the $62.50 to $63 area in the stock fails to hold as resistance, instead of buying the stock, one could also buy at-the-money calls. Vice versa, if the levels hold as resistance and a reversal day appears, one can buy puts instead of shorting the stock.