One under-$10 name in the specialty retail complex that's trading within range of a major breakout trade is
, which, through its wholly owned subsidiaries, is a specialty retailer of fine jewelry. This stock has struggled so far in 2012, with shares off by around 30%.
If you take a look at the chart for Zale, you'll notice that this stock has been downtrending for the past six months, with shares dropping from a high of $4.05 to a recent low of $2.18 a share. During that move lower, shares of Zale have consistently made lower highs and lower lows, which is bearish technical price action. That said, on Wednesday this stock gapped up over 13% to $2.64 a share on above average volume. That move has now pushed ZLC within range of triggering a major breakout. That move is also going to give Zale a chance of reversing its downtrend chart pattern.
Market players should now look for long-biased trades in ZLC if it can manage to trigger a break out above some near-term overhead resistance levels at $2.79 to $2.84 a share with high volume. Look for a sustained move or close above those levels on volume that's near or well above its three-month average action of 297,425 shares. Keep in mind that this stock's 50-day moving average sits at $2.78 a share, so if that breakout triggers it will mean that key level has also been taken out. If we get that action soon, then ZLC could easily rip higher back towards its 200-day moving average of $3.32 a share, or possibly back towards its six month high of $4.05 a share.
If you buy this stock off of weakness and anticipate the breakout, then I would simply use Wednesday's low of $2.40 as my stop. I would rather play this name off of strength though since that a breakout above $2.79 to $2.84 will push ZLC back above its 50-day. Volume on Wednesday was 777,500 shares, which was well above its three-month average of 297,425 shares. That's bullish action, so look for strong volume trends to continue if ZLC triggers that breakout soon.
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