While energy is taking a little breather as equities rocket higher this morning, it is time to expand the horizons a bit on the bullish side.
I'm not a huge fan of retail from the fundamental side and one name I saw issues with in the past was Conn's (CONN), based on its aggressive use of credit. While the stock did suffer from an over-abundance of low-quality credit customers, the chart now seems to indicate those concerns may be in the rearview mirror.
The culmination of concerns and bearishness hit in December 2014 and continued through February when CONN started a massive turnaround on the charts. The stock has now completely filled the huge gap left in December. Normally, as a gap is filled, I would not be too bullish, but the stock has not just filled the gap here -- it has filled the gap and now consolidated, which is exactly what you want to see. A pause at the gap fill is a good chance for all the remorseful November bulls (buyers) to be replaced with new bulls. Same price, but less scars.
The stock has set into a cup-and-handle pattern that it is trying to break out from today, although I think early next week is more likely. While no one indicator has been a solid buy trigger, using a combination has worked well. For instance, buying the relative strength index (RSI) when it moves over 50 in conjunction with a bullish crossover on the slow stochastics was a good May entry. This was a nice combination of trend and momentum.
Another instance was the same RSI crossover, but this time combined with the 34-day moving average crossing above the on balance volume. Here we were combining momentum with volume and price. On the flip side, if we go back to the December breakdown, we'll see a bearish trigger in everything, which was a good hint the initial gap down wasn't going to be the bottom. The targeted upside of a breakout on this chart would be $37-$38.
The price pattern changes when I pull back the chart to a longer-term view. Now, we can clearly see an inverse head-and-shoulders playing out. The neckline appears similar to the daily chart breakout, although I would put it more in the $34-$35 range. While this is a clear pattern, it is a large pattern projecting a target around $55 over the next year, which I view as a little unrealistic. However, even if we only get half that move it would still put CONN at $45. That wouldn't be too shabby of a performance.
We are seeing a breakout in the accumulation/distribution line offering a small bullish divergence. A bullish crossover in the Aroon indicator could signal the emergence of a new trend. I'd prefer to see this crossover before a price break higher. I would also note, for future reference, buying the five-week moving average crossing above the 13-week moving average has been a solid trade. The stop point there would be a break below the 13-week moving average and a simple channel or profit-trailing technique if the stock moves higher after entry.
While Conn's may not be my favorite on the fundamental front, it has a chart worth noticing. Clearly, someone out there in the market thinks the story is worth buying at the moment. That's enough to keep me very intrigued and looking closely for an entry.