|On July 9, 2008, "A Big Short On Big Lots," I suggested that "this seems to be a good opportunity in which to short [shares of] BIG." After an initial drop from $32 to $26, the stock rebounded into a position in which it again looked suitable to initiate and short positions that may have been closed. Having now convincingly broken beneath the July low of $26, it seems to be a suitable time to see where BIG may be headed.|
|Before discussing a price target, we have to enter stops to protect any existing gains or newly established positions. The red circles show the times where BIG has set up $26 as a support/resistance zone. The old support level of $26 now turns into a resistance level, so you may wish to have stops close to $26.|
|FIGURE 1: BIG, DAILY. The red circles show the times where BIG has set up $26 as a support/resistance zone.|
|Graphic provided by: Wealth-lab.|
|BIG has a historical tendency to create and subsequently fill large gaps. From 1990 on, there are eight gaps over 10% that we filled within a year and only two that were not. The green circle shown in Figure 1 is a big gap of roughly 22% that was formed in May. If history is to be any guide, then there is an 80% chance that BIG will close this gap in at most the next few months. The low end of the gap — and hence the price target — is $17.45. At BIG's current price, that is roughly $2.00 of risk for $7.00 of reward.|
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