Gap Still Has the Right Fit

 | Sep 13, 2017 | 9:50 AM EDT
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We have not been positive on the retail industry but we have been bullish on Gap Inc. (GPS) in our recent coverage, here and here, where we said in our summary, "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."

This is no time for a victory lap as it is never a good idea to let your guard down in the fast-paced world of investing and trading so let's take a look at the latest charts and indicators to see if any adjustments are needed. Where is the fitting room?

In this daily bar chart of GPS, above, we can see the strong and swift rise from $22 last month to $28 yesterday. At this pace our $29-$30 price target is within striking distance, as they say. The slope of the 50-day moving average line has been positive since late July and now the 200-day moving average line is also starting to turn up. The 50-day average could soon cross above the slower to react 200-day line for a bullish golden cross.

The On-Balance-Volume (OBV) line continues its rise from early July signaling more aggressive buying and confirming the advance. The trend-following Moving Average Convergence Divergence (MACD) oscillator is clearly above the zero line and in a bullish configuration.

In this weekly bar chart of GPS, above, we can see how prices are about to break out of the 13-month consolidation pattern. When you project the height of this pattern upward from the breakout point you get roughly a $32 price target -- a little higher than our original $29-$30 objective. Prices are above the 40-week moving average line and the slope is just starting to turn positive. The weekly OBV line is still pointed higher and signals good accumulation on this timeframe.

The weekly MACD oscillator has crossed above the zero line for an outright go long signal.

In this Point and Figure chart of GPS, above, we can see the big run-up this month (look for the "9" on the chart for the first entry in September). The breakout at $26.72 can be seen. A price target of $27.27 has been reached but that does not mean the rally is over.

Bottom line: Prices could rest or take a breather in the short-run but the advance looks like it can carry further on the upside. Our price targets are $29, $30 and $32. Longs should consider raising their sell stop protection to their entry point. Never (did I say never?) let a profit turn into a loss.

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