Shares of home furnishing company Bed Bath & Beyond Inc. (NASDAQ:BBBY) have seen a tough going in 2015 despite the bid under housing-related stocks, as represented by the SPDR S&P Homebuilders (ETF) (NYSEARCA:XHB).
While home furnishing stores as a group have not performed well this year, BBBY stock has been a clear underperformer and now has reached a technical juncture where … well, the stock needs to either hold or fold.
Active investors have two trades available to them that have some clearly defined risk:
Bed Bath & Beyond is scheduled to report its next batch of earnings in two weeks on Sept. 24, which likely is the next big toggle date for the stock. From a risk management perspective, any positioning ahead of that date by active investors should be small to moderate, as we should get more clarity after the report.
Of course next week’s FOMC statement could also move this stock as it is linked to the housing market, which in turn is linked to the course of interest rates.
BBBY Stock Charts
The relative chart/ratio chart of Bed Bath & Beyond versus the XHB ETF below looks precarious as the multiyear underperformance by BBBY is apparent but has also reached some support in the meantime. To be clear, there is no real evidence of a change of trend here just yet, but there is some horizontal support worth respecting, and that’s one of the reasons why BBBY stock now sits at an interesting spot.
Moving on to the multiyear weekly chart, we see that BBBY stock is dancing on a defined line of support (black), which previously acted as resistance until the year 2011. However, the price action since then has been choppy through a longer-term lens, but wonderfully volatile for traders.
The bears will point out the head-and-shoulders pattern marked by the three triangle tops, which by definition has the black line as neckline support. If and when this line were to snap, BBBY would likely break down toward the mid to low $40s, which is why on further rallies active investors could look to sell out-of-the-money call credit spreads as one way to bet on a break below the neckline support.
This also could be a way to play BBBY stock into and through earnings as implied volatility of options currently run at the highest point of their 52-week range.
The bull case for BBBY stock — and one that may be better considered after the Sept. 24 earnings announcement — is that the falling wedge pattern in place (black lines) should ultimately resolve higher. The three rallies since early 2013 each began to solidify once the stock managed to break and hold above the yellow 50-day moving average, which has now acted as resistance since the spring.
If BBBY stock can overcome the $64 area, preferably on a weekly closing basis, then upside could certainly open up into the high $60s or low $70s, possibly into year’s end.
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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.