The Key To Land's End's Rise & Future

08/20/21 04:35:20 PM

by Billy Williams

Price direction reveals the trend but this stock's relative strength is the fuel to keep it going

Security: LE
Position: Buy

For the better part of a year, experts have been warning that the market is overdue for a correction, which hasn't materialized. Others have been riding the market higher but are they about to get nose bleeds from riding the market's dizzying climb to record highs?

Price points the way but relative strength is a better indicator of whether the market has the fuel to keep going (or if the tank is running on fumes and about to signal the bears to join the party).

That said, one stock is showing a lot of relative strength combined with compelling fundamental and technical signals to continue higher. Even better, it has a more compelling story for a winning trade idea.

First, the market keeps inching higher but can it continue?

Figure 1. Weekly chart for LE.

Graphic provided by: TC2000.com.

A Rising Tide

The SPX keeps on trading higher but it's doing so on lower volume. This divergence between price and volume should give you hesitation. Trade volume acts as a sign of trader commitment to a given trend so rising prices with declining volume should give you pause.

Now, that is not to say that price can't continue to trend higher but it's a "canary in the coalmine" indicating that something is off. Stops should be raised, positions should be adjusted, and/or profits should be taken as risk control measures.

But what should make you cautious is what the underlying cause could be — institutional distribution.

The market is at record highs but there is no breakthrough price action combined with breakthrough volume. This means that price seems to lack conviction on the upside which could mean that institutions are selling in the rising price action, the stepping aside.

A certain level of distribution is to be expected but if the distribution days start to mount up in the coming weeks, then a correction may not be far off.

So, with the wall of anxiety getting higher, what next?

Figure 2. Daily chart for LE.

Graphic provided by: TC2000.com.

Stay On The Right Side Of The Tracks

So, now that you've assessed what the trend is and the risks surrounding the trend in place, you chunk it down and look for the strongest elements in that trend to trade.

This brings us to the company, Land's End (LE), an online clothing retailer that has been in business since 1963. The company has a significant online presence with the bulk of its revenue coming from ecommerce but still has a brick-and-mortar presence. With 31 stores in key locations spread out in prime real estate across the U.S., combined with significant 3-party sellers, LE is a well-diversified clothing retailer with varying income streams that are not dependent on one particular source.

The company had its IPO in 2014 where it reached its all-time high but then cratered. Now, like most IPO's, price rises then falls but if the company's business model is sound it, along with its stock price, will manage to climb back. Better, it will go higher.

So, the trade theme behind LE is a trendy, hip clothing retailer with a strong ecommerce presence in a world not yet out of the Covid lockdown. Many consumers prefer online due to convenience anyway but add in a healthy amount of caution, and they will continue to choose convenience over retail shopping in person.

That said, LE is setting up for a buy-point at $44.50 and a trailing stop.

In Summary

Online shopping was hot before the worldwide lockdown but the pandemic has conditioned consumers, even more, to shop online.

This puts proven retailers with popular products and a significant presence — online and offline — as having a significant competitive edge. This edge allows them to weather market uncertainty and their overall relative price strength gives them fuel to trade higher as their competitors stumble.

Billy Williams

Billy Williams has been trading the markets for 27 years, specializing in momentum trading with stocks and options.

Company:	StockOptionSystem.com

E-mail address:	stockoptionsystem.com@gmail.com
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