Zale's Volatility Can Be Traded

Zale has traded with a percentage spread of more than 110% over the last six weeks.
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By L.A. Little of tatoday.com, author of Trade Like the Little Guy.

Zale

(ZLC)

has experienced a very volatile six weeks of trading with a percentage spread of more than 110%. With those kinds of moves, if your timing is decent and you're not too greedy, a few pennies can come your way.

Since Tuesday's low, ZLC has once again taken off, up about 40% in two days. Is this latest move done or is there still a trade here? To answer that, let's go to the charts.

The monthly chart gives us the big picture -- the larger contextual view of risks and possibilities.

ZLC has traded from a high of the mid $30s (the $42.50 is a bad tick) all the way down to under $1, and that was accomplished within the past three years. The most interesting characteristic is that volume has swollen in ZLC. Part of that is because it is so cheap now; it takes a lot more shares to put some money to work. The other part may be that larger money players are starting to think that the company just may make it back from the brink of extinction. Whatever the case, it creates volatility and volatility can be traded.

It is when you drill down to the weekly chart that you can get a sense of the ranges that are currently at work.

Here we can see that support is around the $2.50 area and initial resistance comes into play as prices approach $4. With the surge this week, $4 is just a stone's throw away.

The other point of interest is that as prices approach the resistance zone they are doing so with expanding volume. If that resistance is moved, it will take a few hours to jump to the next one probably. The next one happens to be roughly 50 cents to 60 cents higher.

Switching to the daily chart, here we can see the powerful two-day surge that has taken prices back towards resistance.

Recognize the context for this surge though. Even with the violent decline that had occurred, the short-term trend was, and still is, confirmed bullish.

The retrace in price, though large, didn't carry sufficient volume to push lower. See how price came into the high volume bar from late February with lower volume than the prior two breakout bars? In most cases like this, lower prices get rejected, reverse and head the other way. That proved to be the case here.

Until next time, keep trading the charts!

At the time of publication, Little was long Zale, though positions can change at any time.

L.A. Little, author, professional trader and money manager, writes daily on

www.tatoday.com

, a free educational site for traders and investors. He has been featured in numerous publications and is the author of

Trade Like The Little Guy

.

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.