January 1, 2015
Chart Says This Sleeper Stock
is About to Rally 15%
By Michael Kahn
With a shift into consumer-oriented sectors now under way, a recovery in lagging retailers could provide nice profits for traders who spot breakouts as they occur.
Although Sotheby's (NYSE: BID) is not a traditional retailer (buying inventory and reselling it in a store or website), its chart sure does look similar to many that do.
Sotheby's is an auctioneer of authenticated fine art, decorative art and jewelry. The stock had a rough year in 2014, falling from the $53 area to an October low near $35. It was a rather brutal decline. Several times along the way, BID started to perk up, only to fall again.
But after several months of sideways movement, the stock formed a technical base, or low-level trading range from which the bulls can launch a more solid upside attempt.
Although trading was light over the past two weeks in the traditional year-end slowdown, the chart does show a tentative breakout in place. What was a flat stock now has an upward bias with positive money flows and momentum.
The first item we notice on the chart is a pair of higher highs and higher lows since early October. This is the very basic definition of a rising trend, but with only one set of higher data points we need more.
For that we look to see if resistance at the top of the base was breached. Trading this week left several closes above the top of the range when viewed on a daily close-only basis. In other words, if we set aside the intraday wiggles and focus on closing values, we do indeed have a breakout.
Next, on-balance, or cumulative, volume is rising to reach its highest level since March. Money is finally flowing into the stock, and that means demand is on the rise.
And finally, moving averages show a positive development. The 50-day average is now above the 200-day average for the first time since March.
All told, we see the makings of a base breakout or, for more advanced chart watchers, a rounded bottom formation. The result is the same -- a formerly comatose stock seems to be waking up.
Recommended Trade Setup:
-- Buy BID at the market price
-- Set stop-loss at $41.75
-- Set initial price target at $49.50 for a potential 15% gain in six weeks
Note: Over the past year, one little-known indicator spotted 29 stocks right before they jumped double digits in a month. Now, it's tagged another stock as an immediate "buy." In fact, it's flashing the same kind of buy signal as a stock that rose 266% in a year. Get its name here, including all the details on this indicator.
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