Next of the Discount Kings – Cost Plus

Family Dollar Outlets, $FDO, reported a few weeks back, Dollar Tree, $DLTR, today, the next in the line of ‘cheaper than Walmart’ stores to report is Cost Plus, $CPWM. This stock does not offer good liquidity in the options market so we offered no play on it. But let’s take a look to see how it might react and how you can prepare.

The weekly chart above shows the big run up in an ascending wedge from 2009 until breaking it in May this year. Since then it has been trending lower. But the last 5 weeks have been building a bull flag within that move. The Relative Strength Index (RSI) has moved higher up to the mid line but has been unable to break into bullish territory, while the Moving Average Convergence Divergence (MACD) indicator has turned positive. With the Simple Moving Averages (SMA) running mostly sideways there is not a consensus view to the next move on this timeframe. Moving in to the daily chart below shows that the flag stalled the move higher upon reaching the falling 100 day SMA. It also shows that this flag has been going on for a long time and the RSI is now testing the mid line from above while the MACD has given up the ghost and turned negative. Thursday’s Bearish engulfing candle also is a sign that the short term is looking lower.

The clear focus for this name is the resolution of the bull flag. It is likely to resolve tomorrow with the earnings catalyst. if it breaks down expect a retrace eventually below the 50 day SMA. A break out higher has a price objective of 10.50. Grab some coffee and fire up the computer early to be ready.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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