That seems rather plausible. After all, earnings are one key factor that drives stock prices. But in this case, I’m referring specifically to Big Lots, Inc. (BIG). It’s part of a very strong industry group, broadline retail ($DJUSRB), which set a new 52 week relative high vs. the S&P 500 earlier this month, so we know money is rotating into the space. Within the space, BIG established a new 52 week relative high vs. its peers. Check this chart out:
When you look at those relative strength panels, you see lines moving higher from left to right. That’s EXACTLY what you want to see as a momentum trader. Broadline retail is in favor and BIG is outperforming its broadline retail peers. BIG has raised guidance TWICE during this quarter, triggering both of those gaps higher. I believe pullbacks create opportunities in a stock like this (I own BIG shares).
On May 29th, BIG raised its earnings guidance to $0.65 to $0.80, while the current estimate resided at $0.31. Less than one month later, on June 26th, they raised EPS guidance again – this time to $2.50 to $2.75. Consensus estimates were only $0.85. After this second announcement of raised EPS guidance, BIG soared to near 44. But this is where doing your homework and having patience pays off. BIG just touched its 50 day SMA, down more than 20% from its high, with the selling on much lighter volume. I look for buying at this level.
If you believe that putting stocks on a Watch List and waiting for better opportunities to pounce is a strategy that fits with your trading style, you might consider joining me tonight for our quarterly “Q2 Earnings” webinar that begins at 4:30pm EST. You can CLICK HERE for more information about tonight’s webinar. The room link will be provided on our Member home page.
Tom Bowley, Chief Market Strategist