Pep Boys Get Some Pep

06/12/08 10:51:03 AM

by Arthur Hill

With a big move off support, Pep Boys Manny Moe & Jack looks primed for further gains and a challenge to the next resistance level.

Security: PBY
Position: Accumulate

Figure 1 shows weekly prices and a rather sharp decline from June to January. Over a seven-month period, the stock lost more than 50% of its value and found support around 8.5 in January. There was a big surge toward the end of January, but volume was low and the gains did not last as the stock moved back toward the January lows.

FIGURE 1: PBY, WEEKLY. Note the rather sharp decline from June 2007 to January 2008. Over a seven-month period, the stock lost more than 50%.

Graphic provided by: TeleChart2007.

Pep Boys Manny Moe & Jack (PBY) hit support from the January lows in mid-April and then consolidated around 9 for eight weeks. This consolidation formed a rather tight trading range with support at 8.5 and resistance at 9.5. After a long consolidation and period of low volatility, a big move and volatility expansion can signal the start of an extended move. PBY surged off support with its biggest advance since January, and this looks like the start of a rally.

Figure 2 shows daily prices and focuses on the trading range. The stock gapped up three days ago and broke resistance with high volume. There was a pullback the next day and then another surge on the current day (June 12). This chart snapshot was taken about an hour into trading. The stock surged back above resistance and the upside target is the next resistance zone around 12.

FIGURE 2: PBY, DAILY. The stock gapped up and broke resistance with high volume.

Graphic provided by: TeleChart2007.

Momentum confirms the breakout. The moving average convergence/divergence (MACD) turned negative in March and remained negative throughout the trading range. Note how the indicator hovered just below the zero line as the stock traded flat. The break into positive territory turns momentum bullish and confirms the price breakout.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Pep Boys Get Some Pep

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