As part of my weekly review, I went through the entire S&P 1500 on both the weekly and daily time frames to identify long and short opportunities as well as any major market themes. Unfortunately, the evidence is still mixed when it comes to the market's next directional move, but there was one chart that I wanted to point out because it reminded me that opportunity can often lie where you least expect.
In mid-2014, a restaurant chain named El Pollo Loco Holdings, Inc. (LOCO) went public, quickly doubled, and then fell roughly 75% over the next year. Like many IPOs that boom and bust, most people have forgotten about it. In fact, I thought it had gone out of business or was taken out. Ironically, it's still listed and is one of the best charts in the S&P 1500.
Above is the daily chart showing prices going through the classic bottoming process that I explained using Twitter's stock last June. Longs and shorts have been worn out, expectations reset, and now prices are breaking out of this base to the upside. With momentum in a bullish range and prices above a rising 200-day moving average, the weight of the evidence suggests that this is the beginning of a new long-term uptrend in the stock.
Given how clean this chart is, our risk is well defined, and reward/risk is skewed in our favor as long as share prices are above $14.05. We want to be buying weakness toward that level and taking profits at our initial target of $21.50.
Ideas like this are exactly why we regularly look at our entire universe on multiple time frames. While scans and other tools can help reduce the amount of time spent researching, it's impossible to take a weight of the evidence approach without looking at all the data for yourself, so we do.
In addition to our top-down view of the market, we'll be discussing more individual trade ideas both long and short in tomorrow's Member's Only Conference Call.
Thanks for reading, and let us know if you have any questions!