Provident Financial Holdings
, a California-based financial services company, has not enjoyed much price movement since late 2004.
The stock price has been stuck in a range of $25 to $33 for many years now.
That was until recently, when the stock price made a strong downtrend move and the reversal under $25 failed to offer much strength for a price move back above that former resistance.
Given that the adage of what was support should now be resistance is holding true, the next support level is not reached until $20.
Normally when a stock price has been locked in a range for so long, any movement outside of that range tends to bring in an expanded volume scenario.
It's interesting that as price falls in 2007, volume declines as well. The liquidity factor in this stock adds risk. The declining volume would suggest to me that there is a lack of buy-side interest that is willing to support the stock as it falls.
Instead, each new attempt at a rally is met with distribution pressure and caps the price appreciation. In this case, that cap is at former support. This portends a bearish scenario.
The ideal setup for this trade would be for an entry near $25 with an invalidation level around $27.20. This should offer about $2.20 in risk.
The target for price should be around the $20 support. This would offer more than a 2-to-1 reward/risk ratio for the setup. Below the $20 level has a lower probability.
If the stock price moves under $23.35 without first offering an entry, this trade setup is no longer valid. Shares closed Monday at $24.00.
Provident Financial (PROV)
Updates on Previous Picks
Bank of the Ozarks
did not set up last week. The ideal setup for this trade will be to see a close under $27.90. If this happens, look for a return to $28.25 for entry, with a stop at $29.50. This offers $1.25 in risk.
The profit target at $26 should offer nearly 2-to-1 in a reward/risk scenario. If the stock price moves over $29.25 without first closing under $27.90, this trade is no longer valid. If the stock closes under $27.90 but moves under $27.50 without first offering an entry at $28.25, this also negates the setup.
Shares closed Monday at $27.95.
At the time of publication, Schumacher had no positions in stocks mentioned, although holdings can change at any time.
Chris Schumacher is a financial trader, speaker, writer and co-author of
Techniques of Tape Reading
. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback;
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