Tuesday, 26 August 2008

Mr. BIG

Aside from the usual victims that were the result of the financial mess in the US, or what we normally call their economy, another sector badly hit is the retail sector. It's actually a vicious cycle if you think about it. Oil rises, it hits the sectors that immediately need oil, like airlines and trucking. Since they bear the brunt of the sudden impact of oil price hikes, they have no choice but to pass the burden on to their customers. All that trickles down to the consumers.

If the consumers also feel the worsening economy through their decreasing purchasing power, they have no choice but to cut back on the usual expenses. That translates to lesser expenditures in the retail sector. So why the heck am I talking about the retail sector? Because I found one stock in this sector which could be bucking the trend; this is Big Lots, Inc. (NYSE:BIG).

Taking a look at the 10 year chart, it has been badly beaten for most of the decade. It has moved sideways under $20 for the duration of 2000 to 2006. If you look at how it has performed, it has somehow created a big rounding bottom. Not only has the volume confirmed that this is the pattern for that time, but the MACD also confirms that all that 7 years were nothing more than a consolidation. In preparation for...?

It is very probably that this was a big preparation for what it has been doing for the past 2 years. It is not under $20 anymore but it has ranged from a high of $36.15 to as low as $12.40. More interesting is the formation it has made. From the looks of things, it has created an inverse head & shoulders pattern with an upward sloping neckline. The MACD has followed the movement of the pattern.

So what do we have in store here? If you want to trade this and we base our target from the inverse H&S, our target is around $56.50. That's a projected profit of 58%. This will probably materialize in 8 months' time max. If you're willing to wait longer and want to base your projection on the big cup, then your target would be $61.90 or a possible profit of 78%. But that would also mean that you're willing to wait it out for 4 years.

Slowly but surely, there have been more issues that are showing bullish patterns. The tide for the DJIA may be changing slowly. It may be time to look for issues to go long on.

2 comments:

PSE Trading said...

I saw links on your site about technical analysis charts.

One question though, how effective is charting? If you are using it, how much % in profit have you made using that method?

Since, I'm kind of hesitant to place my bets based on charts.

Tarantrader said...

Hi,

Charting is quite effective compared to reading financial statements and gathering all those numbers. Nothing is 100% effective anyway but the accuracy of charting is conservatively put at 70%, at least.

It's understandable for you to be hesitant. It's human nature for us to be fearful of what we don't know or understand. But once you get to understand this, you will know what to do in different situations.