Retailer Fossil Group (FOSL) posted some strong earnings the other day and the stock skyrocketed. Let's check and see if the gains are sustainable.
In this daily bar chart of FOSL, below, we can see that prices traded in a long sideways pattern from late March. The range was fairly narrow and very old chart watchers (maybe older than me) would call it a "line" pattern. In addition to the narrow range of activity the trading volume was very light and the On-Balance-Volume (OBV) line was very flat to declining.
Prices gapped higher on Thursday but by the end of trading the close was near the low of the day and not in the upper range. This kind of close tells me that traders used the strength to sell. Does the phrase "Never look a gift horse in mouth" make sense?
In this weekly Japanese candlestick chart of FOSL, below, we see a picture where the recent price strength "came out of nowhere". The upper shadow on the candle pattern tells us that the highs were rejected.
In this daily Point and Figure chart of FOSL, below, we can see a potential $37 price target.
Bottom line strategy: In other markets years ago it was common for a stock to pullback after an upside breakout. You actually had to be on guard for it. In this current market environment some stocks open sharply higher and keep going. The weak close of FOSL on Thursday tells me that if we want to buy FOSL we can probably get it under $16 or $15.
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