That seems rather plausible. After all, earnings are one key factor that drives stock prices. But, in this case, I'm referring specifically to Big Lots, Inc. (BIG). It's part of a very strong industry group, broadline retail ($DJUSRB), which set a new 52-week relative high vs. the S&P 500 earlier this month, so we know money is rotating into the space. Within the space, BIG established a new 52-week relative high vs. its peers. Check this chart out:
When you look at those relative strength panels, you see lines moving higher from left to right. That's EXACTLY what you want to see as a momentum trader. Broadline retail is in favor and BIG is outperforming its broadline retail peers. BIG has raised guidance TWICE during this quarter, triggering both of those gaps higher. I believe pullbacks create opportunities in a stock like this (I own BIG shares).
On May 29th, BIG raised its earnings guidance to $0.65 to $0.80, while the current estimate resided at $0.31. Less than one month later, on June 26th, they raised EPS guidance again - this time from $2.50 to $2.75. Consensus estimates were only $0.85. After this second announcement of raised EPS guidance, BIG soared to near 44. But this is where doing your homework and having patience pays off. BIG just touched its 50-day SMA, down more than 20% from its high, with the selling on much lighter volume. I look for buying at this level.
If you believe that putting stocks on a watchlist and waiting for better opportunities to pounce is a strategy that fits with your trading style, you might consider joining me tonight for our quarterly "Q2 Earnings" webinar that begins at 4:30pm EST. You can CLICK HERE for more information about tonight's webinar. The room link will be provided on our Member home page.
Tom Bowley, Chief Market Strategist