With tax season upon us, you'd think that tax preparation firms would be at seasonal highs. If this is a seasonal high for
Jackson Hewitt Tax Services
, it would be out of business before you knew it. The issue seems to be that it continues to get easier and easier for people to file their own taxes using software packages rather than visiting a local preparer. In these times where cutting costs is paramount, this is one way to do so.
The question for traders is: "Does JTX stock at $2 represent an opportunity or a trap?" To try and determine the answer, let us turn to the weekly chart to get a feel for the landscape.
As can be seen from the weekly chart, JTX has been mired in a long and painful fall over the past nine months, a time when the market was making a historic move higher.
That, in and of itself, should tell you something. The something that it tells me is that you need to tread carefully when trading this stock and "trading" is the operative word. JTX is not an investment at these price levels. A lot of positives need to transpire before one could even begin to think that way.
Looking at the chart again, the one positive that has begun to occur is that the latest push lower on the weekly chart appears that it may fail. What I mean by that is that the low prices printed this week will almost certainly occur on lighter volume (I have projected volume coming in around 8 million shares this holiday-shortened week). If that is true and if prices close above the swing low from Feb. 9 at $2.01, then this would represent a failed test on this time frame. A failed test usually witnesses a price reversal. The first significant resistance zone on the weekly chart starts at $2.55 and carries as high as $2.90.
Before stocking up on JTX though, you need to consider the daily chart for the daily chart is where you have to trade JTX for now. On the daily, the false break lower is visible here as well. Again, volume is lighter on the last push lower compared with the previous swing point. This tells us that prices should push back the other way (higher) but the problem is that the lows recorded on Monday had decent volume associated with them. When lows have good volume that means they can get tested again. Given how weak JTX is you can't rule that test out.
Thus, from a trader's perspective, the risk is a test of the $1.88 low and a reward at the first resistance which happens to be the downtrend resistance line, currently at $2.25.
Unfortunately, this reward-to-risk equation simply doesn't work.
Given these parameters, to trade JTX long, you have to wait. You need either a retest of the low that fails or a break of resistance in which you can buy the subsequent retrace. The way the former trading scenario would look would be for prices to trade under the $1.88 low on lighter volume and to close above that price point. In that case, you would buy the close and place your stop under the low of the day.
In the other scenario, you have to wait for prices to pierce the downtrending resistance line on expanding volume, and then stall in the resistance zone from $2.30 to $2.40. Assuming prices retreat on light volume back into the $2.10 area you could purchase the stock, put your stop under the $1.88 area and shoot for the $3 area. At that price point, you would reevaluate and determine your next move. For now, JTX is strictly a wait-and-see stock. There may be a trade to be had but you need for one of the two situations described above to occur to give you a low-risk trading opportunity.
Until next time, just keep trading the charts!
At the time of publication, Little had no position in the stocks mentioned, though positions can change at any time.
L.A. Little, author, professional trader and money manager, writes daily on
, a free educational site for traders and investors. He has been featured in numerous publications and is the author of
His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.