Christopher & Banks ( CBK) has not had a stellar beginning in 2007, as the stock's first-quarter price action remains stuck in a range under $21. This women's specialty apparel retailer started to show price weakness after a failed breakout above $30 a share in September 2006.

After breaking the $30 level, congestion set in and eventually led to a capitulation phase in the first week of November. Capitulation is marked by a strong vertical movement down combined with a large increase in sell-side volume. This type of action typically exhausts sellers, and a reversal is the next likely move for the stock price.

A reversal that occurs after capitulation should, at the very least, see a price movement back to the level from which the capitulation began. For Christopher & Banks' stock, this would correspond to the price level near $27. However, price barely returned to $23 in November before breaking the capitulation support level and moving below $20 a share.

After the failure to hold capitulation support, another technical aspect of bearish price behavior was seen in the stock. A retest of the former support level failed to break above it, confirming that level as new resistance.

Two more attempts to break through the new resistance level have also failed. The first of those attempts occurred in February, and the second in the past two weeks. In addition, this latest failure saw an increase in volume as the company's disappointing earnings brought in distribution pressure, and there is now a higher probability of seeing a downtrend continuation signal.

The ideal setup for this trade would be to see the current congestion range support break to the downside. If this can happen, a close under $16.90 would confirm the downtrend. The entry strategy would be to see price move back up to $19.50, with a stop at $21.10. This offers $1.60 in risk.

The first profit target would be placed at $17.90, which would satisfy the 1-to-1 reward/risk ratio. The second profit target would be at $15.25.

If price closes under $16.90 without first offering an entry, this trade setup is no longer valid. Shares of Christopher & Banks closed at $18.41 Monday.


Christopher & Banks (CBK) -- Daily


Updates on Previous Picks

  • Building Materials Holding ( BLG) closed under $17.50 last week without first offering entry. This trade setup is no longer valid and has been removed from the Watch List.
  • FiberTower ( FTWR) did not set up last week. The ideal short setup would start with an entry at $5.60. The stop would be placed at $6.20, offering 60 cents in risk.

    The downtrend confirmation signal would result if the price closes below $4.60. This would be the first area for profits, offering $1 in profit vs. the 60 cents in risk. If this level can break, the next profit target would be in the $3.50 area. However, this final target would not be determined until we see how price behaves near $4.60.

    If price moves under $4.60 without first offering an entry, this trade setup is no longer valid. Shares closed at $5.28 Monday.
  • PetMed Express (PETS - Get Report) is still open with the entry at $12.80.The stop at $14.25 offers $1.45 in risk. The first profit target is at $11.35 to satisfy the 1-to-1 reward/risk ratio. Partial or full profits could be taken there. If partial profits are taken, the stop can be lowered to $13, and the final profit target would be the September lows of $9.50. Shares closed at $11.92 Monday.
  • Savient Pharmaceuticals (SVNT) got stopped out at $13 on Monday.

Schumacher had no postions 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; click here to send him an email.