Discount retailer Five Below (FIVE) is at an interesting price juncture. Prices have rallied strongly in the past two to three months and briefly broke above the late July highs. Some of our favorite indicators point to the possibility of further gains while others suggest the failure to stay above the July highs could be a problem.
We looked at FIVE at the end of March and concluded that,"Because the technical clues on FIVE's 'triangle' do not really fit, I would look for an upside breakout. Aggressive traders could consider going long on a close above $41 and add on a close above $42, risking to $36." As it turned out, this approach worked nicely.
Let's take a closer look at our indicators and charts and see if we can come up with a strategy that makes sense.
In this updated daily bar chart of FIVE, above, we can see how prices broke out of the triangle pattern to the upside and rallied above the 50-day and the 200-day moving averages. A bullish golden cross of the 50- and 200-day averages can be seen at the end of April. The daily On-Balance-Volume (OBV) line has been confirming the advance since October, but it has leveled off in the past month, suggesting that buyers and sellers of FIVE are in balance. In the lower panel, the 12-day momentum study shows a weakening pattern from late March into May even as prices continued to rise. This is a bearish divergence and might foreshadow a correction.
In this weekly chart of FIVE, above, we can see prices are above the just-starting-to-rise 40-week moving average line. The weekly OBV line is pointed up and the weekly Moving Average Convergence Divergence (MACD) oscillator is in a bullish mode.
In this Point and Figure chart of FIVE, above, we can see the breakout at $53 but also the current down column of O's as prices have corrected down from $54. A rally to $55 is needed to refresh the uptrend.
Bottom line: If you are long FIVE, I would strongly recommend raising sell stop protection to a close below $49. The lack of sustained follow-through buying above $52 makes me question just how strong the rally is. A close above $55 would refresh the uptrend and then I would raise stops to $50.50.
