L Brands (LB) made a low in May and pulled back for a retest in June. Prices popped to the upside yesterday, giving us the simple definition of an uptrend: a higher low and a higher high. Can this newfound strength be sustained or will overhead chart resistance be too much of a headwind?
In this daily chart of LB, above, we can see the V bottom in May for LB. Notice the heavy volume of trading on the downside gap in early May and a second volume surge at the low that month. Prices quickly rebounded and then pulled back about half of the early gains before renewed buying. Prices are above the 50-day moving average line, but still well below the declining 200-day average. The On-Balance-Volume (OBV) line has not improved that much, which might suggest that the rally has been more short-covering than aggressive new buying. Momentum readings have been weaker on the July rally than the May rally and might be a warning signal to recent longs not to overstay their welcome. The lows of August and April in the upper $70s were support, but they could turn into resistance as old longs look to get even.
This three-year weekly chart of LB, above, shows prices below the declining 40-week moving average line. The weekly OBV line looks like it peaked in the early part of 2015 and is still in a downtrend despite a recovery the past month. The Moving Average Convergence Divergence (MACD) oscillator just crossed giving us a cover shorts buy signal. The chart resistance on approach to $80 can be seen on this weekly chart, too. Aggressive traders could trade LB from the long side for now, but a decline below $70 will weaken the chart pattern and move us to the sidelines.