The market’s starting to creep upwards once again, but investors seem worried that it could come crashing back down at a moment’s notice. Over the last few weeks, equities have been commanded by Trump tweets, trade war drama, and interest rate speculation.
These days, Wall Street is “all in” on buying (or selling) the news. And frankly, that has investors scared.
Even after a historic 5-day rally 2 weeks ago.
That doesn’t mean traders should stop looking for long setups, though. The “house of cards” might be growing taller and taller, but as long as Fed Chairman Jerome Powell keeps talking about slashing rates, its foundation appears somewhat solid.
Until the next crisis, at least.
In the meantime, we’ve sighted an American retailer that could be ready to soar over the next few months, independent of an overbought market that’s teetering on the edge of a correction.
In the weekly candlestick chart above, you can see that AEO may have established one of my favorite candlestick formations – a “double bottom”.
For those of you familiar with double (or even triple) bottoms, you probably know that the occurrence of one typically precedes a trend reversal to the upside. It’s the opposite of a double top, which usually results in a reversal to the downside.
But outside of the recently formed double bottom, AEO has checked all the boxes for promising long setup. The last three times share prices hit the Bollinger Bands (BBs), AEO rebounded in the other direction.
It happened back in August and December of 2018, and again in late April of this year. If you had entered positions each of those times, you would’ve enjoyed hand-over-fist profits in three consecutive trades.
Compounded, they would have returned triple digit gains since the first trade in August.
And now, we have another setup to go long, complete with a rock-bottom stochastic reading (suggesting the stock is oversold). Typically, I would be comfortable doing so if AEO moves at least 1% past the current week’s high (which closes this Friday).
But because this stock is such a big mover, I would prefer to see more price action towards the upside. The narrow green candlestick from two weeks ago has me a little nervous to follow my typical entry rules on this one, due to its high which is significantly higher than the candlestick’s closing price.
For that reason, I’ve pushed my entry price a little further than normal. That might prove to be overkill, but in the end, I’ll never complain about jumping on a winning trade. In this case, AEO looks to have plenty of upside potential…
…For traders who are “eagle eyed” enough to spot it.
