Shares of home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW) have completed a classic breakout move higher over the past three trading days. The move came on the back of better-than-expected earnings last week, which allowed LOW stock to release higher and move out of a nine-month holding pattern.
LOW stock is thus well positioned to work higher still through a multi-week/month lens. Traders and active investors who were positioned for the breakout could begin taking initial profits for risk management purposes.
On Oct. 27 in this very column, I first explained my bullish case for shares of Lowe’s Companies. Among other things, I pointed to the relative strength the stock had been exhibiting and said that its technical consolidation suggested the path of least resistance was higher.
The latest earnings report was all that investors needed to finally allow the stock to break loose and head higher.
Looking at LOW stock from a multi-year weekly perspective, we can see that the consolidation phase from February 2015 finally released higher. Much like the previous consolidation phase in late 2013 into the second half of 2014, this latest breakout was very much in line with the stock’s longer-term up-trend.
Until this trend changes, active investors can now again look to play LOW stock as a trend-follower play, which is to say that mini consolidation phases and dips can be bought with the expectation of further strength. This trade has been on hold since February, but with the advent of this latest breakout LOW stock is once again in a better momentum state.
It is also vital to note that last week’s breakout in the stock resulted in a strong bullish outside/engulfing candle on a weekly basis.
LOW Stock Charts
On the daily chart, we see that the ongoing three-day breakout rally has pushed LOW stock past diagonal as well as horizontal resistance from the February highs. Traders who were positioned for this breakout on the back of my Oct. 27 write-up could consider taking initial profits in coming days, after a strong three day run already.
While momentum is not yet exhausted, U.S. stocks tend to take a breather in early through mid-December, and while this may not alter the medium-term picture of LOW stock, a little risk reduction with the intention of re-loading a little lower is sound risk management.
My next upside target for LOW stock now is $80.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, TheEssence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
