Shares of specialty value retailer Five Below (NASDAQ:FIVE) had a good year of performance in 2018 despite a volatile fourth quarter in the broader stock market. Through the lens of technical analysis, FIVE stock has been in a larger consolidation phase since September 2018 and looks to soon take another leg higher.
With global and U.S. economic growth slowing, one area on the retailer side that I have been attracted to is the deep discount or “dollar store” type of outfits. Five Below as a retailer with products of $5 or lower offered to teenage and pre-teen age groups in my eye falls in to that category.
Also, from a trading perspective I always try to sidestep any major idiosyncratic risks in stocks as much as possible. One way to do that is by not holding trading positions through earnings reports. Five Below recently reported its latest batch of earnings, and this now has the stock trading with less such idiosyncratic risk — at least for the near term.
FIVE Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Looking at the multiyear weekly chart, we see that FIVE stock accelerated its up-trend in the second half of 2017 and then into September 2018 took its chart into parabolic overshooting mode. This then led to a steep corrective phase in the fourth quarter (approximately -35%), which also coincided with a broader stock market correction.
On this chart, however, we also see that the stock found support at its yellow 50-week simple moving average in late December 2018 and again in March of this year. It is now visually apparent that the stock is trying to put further pressure on the well-defined black horizontal line of resistance, which is to say that a breakout higher from this perspective looks likely.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart we see while FIVE stock in late December 2018 traded below its red 200 day moving average, it only did so for a few days before the stock pushed back higher. We can look at this as a breakdown ‘fake-out’ type of move that likely shook out weak hands in the stock.
After Five Below reported earnings on March 27, the stock rallied right into horizontal resistance around the $130 mark the following day. The rally was short-lived however as the stock pulled back the ensuing three days. Since then FIVE stock looks to have picked itself up again and while not yet having cleared above the $130 area it is consolidating in a constructive manner.
Active investors and traders could look to buy FIVE stock around the $125 area with a next upside profit target near $145 and a stop loss at $115.
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