The American fashion retailer based in Columbus, Ohio, whose flagship brands include Victoria’s Secret and Bath & Body Works, L Brands Inc. (NYSE: LB) seems to be getting ready for a price bump in the short-term as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Pattern: As you can see from the daily chart of LB, the stock has been forming a falling wedge pattern for the past several weeks. It has typically taken support at the bottom of the wedge before bouncing back. The stock is currently near the top rail of the falling wedge pattern. Once it breaks out of the wedge, it may move higher.
Daily Chart – LB
#2 Double Bottom Pattern: Within the falling wedge pattern, the stock is currently forming a double bottom pattern.
[hana-code-insert name=’adsense-article’ /]This is marked in the daily chart in pink color.A double bottom pattern is a bullish reversal pattern and a breakout from it indicates that the stock could possibly move upwards.
#3 Bullish RSI: The RSI is currently moving higher from oversold levels and is nearing 50.
This is a possible bullish sign.
#4 William’s %R above -50: William’s %R is currently above -50, indicating strength.
#5 MACD above Signal Line: In the weekly chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
Weekly Chart – LB
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 Oversold RSI: The RSI is currently moving up from oversold levels, indicating possible bullishness. The RSI is also forming higher highs, while the price is consolidating. This indicates that the momentum behind the buying is slowly increasing. This points to a possible reversal.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of LB above the high of yesterday’s candle. This translates to a price above $18.00. The rest of the shares can be purchased above the gap resistance level of $20.00.
TP: Our target prices are $23 and $28 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $15.40. Note that the stop loss is on a closing basis.
Our target potential upside is 28% to 55% in the next 3-6 months.
- Entry near $18: For a risk of $2.60, our first target reward is $5.00, and the second target reward is $10.00. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry near $20: For a risk of $4.60, our second target reward is $8.00. This is a nearly 1:2 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
Tara
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