Gap (GPS) - Get Report was upgraded today by TheStreet's quantitative service. GPS already had a positive chart picture when we reviewed it in late July, so we were intrigued to see whether the charts had broken out over the May highs or were just about it break out. Let's see how these two disciplines -- quantitative analysis and technical analysis -- work together.
In this daily bar chart of GPS, below, we can see an uptrend developing. In July, traders bought the dip to $21. In mid-August, traders bought the dip to $22 and by late August they were buyers to $23. With prices above the rising 50-day moving average line and the flat 200-day line, we will probably see a shift from buying a dip to a buy-strength strategy as the overall technical condition has improved.
The daily On-Balance-Volume (OBV) line has been rising from early July and suggests that buyers of GPS have become more aggressive. The daily Moving Average Convergence Divergence (MACD) oscillator has been in a bullish mode since mid-July.
In this weekly bar chart of GPS, below, we can see how prices have rallied above the flat to declining 40-week moving average line. There is some resistance on the chart in the $26-$28 area, but the strongly rising weekly OBV line suggests this resistance could be easily overcome. The weekly MACD oscillator has crossed to the upside for a cover-shorts buy signal.
In this Point and Figure chart of GPS, below, we can see an upside price target of $27.27 and that a trade at $26.72 will be another breakout point. The size of this possible base pattern going back to November 2016 could support a much higher price target.
Bottom line: Traders could go long GPS around current levels and add on gains above $27. A rally to $31 looks possible and a decline back below $24 would upside this bullish forecast.
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This column originally appeared at 1:29 p.m. ET today on Real Money, our premium site for active traders. Click here to get great columns like this from Bruce Kamich, Jim Cramer and other writers even earlier in the trading day.
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