Charts Say Not to Wait on Gap

 | Jul 26, 2017 | 2:08 PM EDT
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In our last update on Gap (GPS) , we wanted to see a couple of closes above $25 to get more positive on the stock. Our review today of the charts and indicators is telling us not to wait. I would try on the long side of GPS here and add on strength above $25.

Let me explain my shift...

In this daily bar chart of GPS, above, we can see prices pushed briefly below the $22 level and quickly shot back up. Some chart watchers might call this a bear trap. Now GPS is trading between the still-declining 50-day moving average line and the flat 200-day moving average line. The daily On-Balance-Volume (OBV) line is gaining traction and suggests buyers of GPS have turned more aggressive. The Moving Average Convergence Divergence (MACD) oscillator has crossed above the zero line for an outright go-long signal.

In this weekly bar chart, we have a few interesting developments. Prices have gone sideways for about a year, crossing above and below the zero line. GPS is right on the line and it won't take much to close above it. A significant bullish development is the performance of the weekly OBV line, which has been going up since early 2016 and has made new highs for the move up the past two months. This is a little odd for a stock in a sideways trend, but it does suggest that someone is actively buying shares of GPS. I have no special knowledge -- this is just an observation. The weekly MACD oscillator is crossing to the upside for a cover-shorts buy signal.

This Point and Figure chart of GPS, above, shows a breakout at $23.48 and a longer-term price target of $29.52.

Bottom line: Aggressive traders could go long GPS here, risking a close below $22. The $29-$30 area is my target zone and traders could add to initial longs above $25.

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