Gap (GPS) has been stuck in a sideways price consolidation since August. The 50-day and 200-day moving average lines turned flat and the trading range narrowed. Beneath the surface this looks like forward-looking investors have been accumulating shares of GPS.
Let's measure our waist and inseam and see if we are poised to break out on the upside of this range.
In this daily bar chart of GPS, below, we can see how prices have moved in at tighter and tighter range in the past four months. Now it looks like prices are breaking out on the upside from an apex on Wednesday. Yesterday, GPS closed above the rising 200-day moving average line and on Wednesday it closed above the flat 50-day moving average line -- improvement.
Now inspect the On-Balance-Volume (OBV) line in the middle panel. The OBV line has risen since May and has been firm the past three months. This OBV line strongly suggests that despite the ups and down in price investors have on balance been buyers, with more volume traded on days when GPS has closed higher. Now it looks like the OBV line will make a new high for the move up well ahead of the price action. The Moving Average Convergence Divergence (MACD) oscillator is neutral and is just sitting on the zero line. As prices turn up we should see the MACD oscillator generate a fresh outright go long signal.
In this weekly chart of GPS, below, we can see that prices have just closed above the rising 40-week moving average line, which is a pretty reliable buy signal. The weekly OBV line is neutral but poised to turn positive. The MACD oscillator on this timeframe is right below the zero line and one or two weeks of price strength should do the trick to generate a buy signal.
In this Point and Figure chart, below, we have plotted prices using a percentage filter. Here we can see that prices on this basis have broken out over $25.17. A price target of $28.28 can be projected from this upside breakout.
Bottom line: Aggressive traders who want some exposure in retail could go long GPS here and risk a close below $23 while looking for an initial rally to $28-$29.