After a big snapback like we've seen in equities, I've been poking around at some underperformers that might be turning. Investment managers may be chasing performance and looking to names with a lot of room to run or recover in the last quarter of the year. Lexmark International (LXK) has a chart that fits that setup.
Lexmark has been trading in a tight channel for the last month, but experienced a price breakout yesterday. The stock is now set to test the next area of resistance just below $32. A push over this level should set it up for an upside target of $35 with multiple support levels below.
The relative strength index (RSI) has recently pushed above 50, while the commodity channel index (CCI) is hitting highs not seen for quite some time. These bullish divergences on both price and momentum are a huge draw for bulls. Also, we can factor in the Chaikan oscillator moving into buy territory and the Bollinger bands opening up with price pushing higher. This checks all my boxes: momentum, trend, price action, volume and even volatility.
I would use $30 as a stop to the downside with $28 being the focused break for a short trade.
The longer-term picture is a bit murkier. The stock has the same first level of resistance to chew through, but so much damage has been done since July it is tough to get a clear picture for the upside target. At the very least, I would still think Lexmark tests the closing low of the huge red candle; however, a push to the 21-week simple moving average (SMA) is possible.
The stock is coming out of the oversold territory on the RSI, which is a positive, but I would expect an initial rejection when RSI hits 50. I'd really prefer to see the moving average convergence divergence (MACD) indicator cross over bullish this week along with the On-Balance Volume (OBV) breaking above the 13-week SMA. This may be a lot to ask, but ask I shall.
Unless the company delivers a stellar earnings report at the end of October, we'll be capped in the $36-$37 area. Still, I'm willing to give this one a shot for the next few weeks. If it is still holding up into earnings, I'll look to rotate into some defined risk play using stock plus puts or just call spreads.