Trip Miller, managing partner of Gullane Capital Partners, was in our offices recently, and he saw further downside in three stocks as we head into the holiday shopping season -- Kirkland's (KIRK) , Tile Shop (TTS) and Royal Caribbean (RCL) . A compelling fundamental story was laid out, but in this new fast-paced post-election environment, it pays to check the charts and indicators before shorting, or going long for that matter. You have to do everything you can to put the odds in your favor. Let's check the charts and indicators.
When we look at the 12-month daily chart of KIRK above, we do see prices making lower highs, but KIRK has not made a lower low the past year. Someone has been buying KIRK when it has dipped below $12. This is not an uptrend for sure, but it is also not a downtrend either. Let's look further. KIRK has rallied above the 50-day simple moving average line, and the slope of that average has turned from down to sideways. The slope of the 200-day moving average line has turned flat too. A close above the 200-day average line is not that far out of reach. The on-balance volume line has shown some slight improvement from an August low -- prices made new lows but the OBV line did not. This is a bullish divergence as is the higher low on the momentum study in the lower panel. Is KIRK out of the woods? Not yet, but this kind of price action tells me it is not a short sale candidate.
Looking at the daily chart of TTS above, you can see the higher lows and prices trading above the rising 50-day and 200-day averages. This is not a chart that is in trouble. There is only a little resistance above the market in the $20 to $21 area, and the OBV line has started to turn up, signalling more aggressive buying. The moving average convergence/divergence oscillator, one of our favorite trend-following tools, just turned up to a fresh buy signal.
In the weekly chart of TTS above, we can see that the stock has been in an uptrend for two years. Again, this is not what a chartist would be looking to short. The 40-week moving average line is positive, and the weekly OBV line has been rising with prices for two years, signalling major accumulation. The MACD oscillator is giving us a new buy signal. I would rather go long TTS looking for gains into the $24 to $26 area in the months ahead.
This daily chart of RCL, above, shows a stock that is about to make an important upside breakout. You have to think long not short here. Notice how many times RCL dipped into the $65 to $70 area and rebounded -- someone was buying it! RCL is above the rising 50-day average line and above the flattening 200-day average line. The OBV line is starting upward now, and the MACD oscillator is in a bullish configuration above the zero line. A close above $85 is a clear breakout in my book.
When you see the weekly chart of RCL above, you can reach the conclusion that the decline this year was a big correction of a longer uptrend. RCL is above the now-positive 40-week moving average line. The weekly OBV line has been creeping higher the past four months, and the MACD oscillator is about to move above the zero line for an outright go long signal.