As the broader U.S. stock market rally continues thus far into early 2020, I find more groups of stocks that, after a short pause, now look ready for another leg higher. Case in point: shares of Big Lots (NYSE:BIG), which have been in a longer-standing down-trend, began to rally in a meaningful way last month. Now, after a multi-week pause, the stock looks poised to continue this rally.
Over the course of my career as a trader and investor I have come to respect the so-called ‘single factor analysis,’ where only one type of analysis is taken into account (fundamental, technical, or structural) tends to have much lower probabilities of success over time. As such, I always like to take into account all three types to the best extent possible for a more holistic analysis.
For today’s trade idea however, which so far is a pure ‘trade’ as opposed to an ‘investment,’ we will solely look at the technical parameters for the setup. As you will see, this particular bullish setup in BIG stock has a very well-defined next upside target as well as stop-loss level.
BIG Stock Charts
First however, let’s look at the multi-year chart to gain some perspective. Here we see that BIG stock had a well-defined up-trend over the years. However, in 2018 this up-trend broke and a meaningful down-trend ensued.
The sharp rally in the stock off the November/December 2019 lows now has the stock right at the upper end of the down-trend, and thus likely somewhat capped on the upside through this lens, at least in the multi-month time frame.
However, because even a pure technical analysis in my eye is nowhere near complete if one does not at least take into account two time frames, let us dig a little deeper into a more near-term, in this case a daily time frame chart.
On the daily time frame chart we see that on Dec. 6 following the company’s latest earnings report, the stock rallied strongly. This ‘breakaway gap’ rally a few days thereafter led the stock to break above its red 200-day simple moving average for the first time since August 2018.
Since mid-December BIG stock has consolidated nicely above its nearly flat 200-day moving average. This consolidation period can be looked at as a bullish flag formation, which as the name suggests, would have bullish implications for the stock.
Trading BIG Stock
Finally, on Jan. 7 my proprietary B2 reversal indicator printed a “buy” signal.
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Active traders and investors could look to buy BIG stock around the $29 area with a first upside target at $31 and a stop loss at $27.50.
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