Friday, 21 April 2017

WFM, RH, CMG: Bathtub Pattern Developing

I don't know if this is the official name for the technical pattern being played out in these 3 stocks. Going from the left sides and the bases of these 3 stock charts, one is compelled to think that, for symmetrical reason, the right sides of the bathtubs are developing once they break out of the bases.

Restoration Hardware (RH) Chart as of 21-4-2017
Restoration Hardware (RH) Chart as of 21-4-2017

Chipotle Mexican Grill (CMG) Chart as of 21-4-2017
Chipotle Mexican Grill (CMG) Chart as of 21-4-2017

Whole Foods Market (WFM) Chart as of 21-4-2017

 Traders, Mind the Gaps ! 

Of the 3 charts, CMG and RH are more similar in terms of the duration of their basing development (from 06/2016 to 03/2017), and starting point. WFM, on the other hand, is considerably longer (from 08/2015 to 04/2017).

There's one more important difference - one that TA would say doesn't matter - is that WFM has a worse multiples or fundamentals than CMG and RH. This is why i'm already holding RH (2 weeks ago) and CMG (last week), but is still thinking about WFM. There's a large gap that created on 28/07/2015 from $36 - $40. It's quite tempting to enter into the possibility of this gap-fill trade that's coming up really soon. We're less than 50 cents from the gap. So the $36 could be used as stop-loss for a well defined trade with the upside target of $40. The breakout volume is quite strong. Can the rumour mill that it might be a target by Kroger or Amazon might just take it to $40, which happens to be Credit Suisse's target price for the stock?

The takeover talk alone is worth the trade in WFM.

If you look at RH chart, it had just finished its gap-fill move (that was created in 03/2016) and had reached its upper target and so we have the corresponding sideways move in the last few weeks. WFM should play out like that. Of course, no guarantee. Just have stop in place.

There're actually 2 gaps in WFM. So once the lower gaps is filled, it would do some consolidation before attacking the upper gap. Let's deal with one gap at a time.

Whether the right side of these 3 bathtubs are going to be played out fully, meaning symmetrically, is remained to be seen. For now, the break out out of the bases alone warrant my trades in these companies. So far, so good.

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