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Kmart Breaking the Trend

02/05/01 03:04:27 PM
by Sean Moore

With a breakout above its long-term downtrend in early January, Kmart has been on the rise, with its stock price gaining nearly 65%.

Security:   KM
Position:   Buy

Few stocks performed as well as that of the Kmart Corporation [KM] during January 2001. The stock rose nearly 65%, making a significant upswing from a long, steady downtrend. Kmart has broken into territory that it hasn't seen in quite some time, a welcome sign after nearly two years of decline.

After spending two months moving sideways around the $6 level, Kmart's stock slipped to below $5 during December 2000. With woeful holiday sales, it seemed the retail sector could be in for another tough year. During the last few trading days in 2000 Kmart regained a little ground, bouncing up to $5.30 with relatively high volume. This was a positive sign, especially after three months of fairly flat volume.

On January 4, 2001, Kmart's stock rose approximately 15%, with a significant breakout above it's long-term downward trend (see Figure 1). This provided an excellent buying opportunity, especially considering the high volume. The stock has been in a rapid upswing ever since, breaking through several levels of resistance along the way.

Figure 1: Kmart made a significant move above its long-term downtrend in early January 2001
Graphic provided by: MetaStock.
This is an excellent example of a strong breakout above an established long-term trend. The stock maintained its upward movement throughout January and has been able to establish a new upward trend. The breakout is significant given the length the downtrend. The downtrend started in 1999, when Kmart was trading at $18.

Identifying these long trends, whether they're increasing or decreasing, and looking for significant breakouts above or below the trends can provide some excellent opportunities for profit!

Sean Moore Staff Writer.

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