After more than a year, the S&P 500 recently hit new all-time highs. Unfortunately, not every stock has been invited to the party. Despite the rising tide of the market, Bed Bath & Beyond Inc. (NASDAQ: BBBY) remains more than 43% off its all-time highs from back in 2014.
One look at the stock’s chart reveals a bearish technical pattern that could mean that Bed Bath & Beyond still has significant downside ahead.
After Bed Bath & Beyond plummeted from near $80 in early 2015 to around $41 in early 2016, the stock’s free-fall has been on hold throughout the past several months. In fact, the support at $41 has held a number of times, which may have given bulls a certain degree of hope that the bottom is in for the stock.
But while short-term support has been holding, resistance has continued to fall. As a result, the chart has formed a descending triangle, a notoriously bearish technical pattern.
According to StockCharts, the descending triangle is “a bearish formation that usually forms during a downtrend as a continuation pattern,” which would seem to match Bed Bath & Beyond’s situation perfectly.
The idea behind the formation is that sellers are unwilling to sell below $41 in the short-term, but buyers are increasingly unwilling to buy the stock at higher prices. As a result, the stock has traded in an increasingly narrow range, and the resistance and support lines are headed for a convergence.
For now, traders need to be watching the support line at $41 and the resistance line, which currently sits at around $47. Until the stock breaks outside one of those two lines, the descending triangle is still in play.
A breakdown below $41 likely means the downtrend is back in play and the stock will be headed for a re-test of 2010 support at $35.
In the longer term however, the price projection following a descending triangle breakdown is typically equal in magnitude to the widest part of the triangle itself. In Bed Bath & Beyond’s case, that width is roughly $16.50, meaning the new longer-term target would be $24.50.
If Bed Bath & Beyond does eventually record its bearish descending triangle breakdown below $41, traders will be looking for confirmation that the move is for real. High volume typically accompanies big technical breakdowns. In addition, after a true breakdown, the $41 support level will turn into a resistance level, and any return to $41 will serve as a selling opportunity.
Disclosure: the author holds no position in the stocks mentioned.
Lightspeed Financial Services Group LLC is not affiliated with these third-party market commentators/educators or service providers. Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lightspeed Financial Services Group LLC does not endorse, offer nor recommend any of the services or commentary provided by any of the market commentators/educators or service providers and any information used to execute any trading strategies are solely based on the independent analysis of the user.
Copyright © 2001-2021, Lightspeed, LLC. All Rights Reserved.