3 Small Cap Retail Stocks with Bullish Chart Patterns Although classic technical patterns are sprouting up across the capitalization spectrum, small caps are an attractive area to focus on given their tendency to be more volatile.
This story originally appeared on MarketBeat
The laws of physics tell us that what goes up must come down. But in the world of investing, its often the opposite.
Time and time again since the pandemic began, market downturns have amounted to great buy opportunities. What goes down must come up.
That has certainly been the case for U.S. small cap stocks. They were among the hardest hit during last month's correction but are now bouncing back with a vengeance.
As a result, once bearish charts are flashing some bullish formations much to the chagrin of technical analysts. Although classic technical patterns are sprouting up across the capitalization spectrum, small caps are an attractive area to focus on given their tendency to be more volatile.
These are three low-priced small cap retailers inviting traders to check out their new bullish chart inventory.
Is Guess Stock in an Uptrend?
Guess? (NYSE: GES) formed a continuation diamond pattern on January 31st when the apparel retailer closed at $23.02. The long-term bullish pattern shows that the stock broke out of a consolidation period by making a decisive move through diamond shape boundary lines that formed during the recent downtrend. While Guess has since retreated to around $22, the decline was in relatively low volume and the pattern is still very much in play.
This is an example of a classic chart formation that was a long time coming and will take some time to play out. Guess has been in a downtrend since May 2021 when it peaked above $30. If the continuation diamond holds true to form, it is on a path to return to the $28 to $29 level over the next six months. This would represent approximately 25% upside which for a half year holding period is a nice potential return.
It will certainly help matters if Guess is able to deliver strong results for the all-important holiday quarter when it reports next month. Last quarter it posted better than expected top and bottom-line growth and raised its 2022 outlook. The company is benefitting from a booming digital business that is helping offset weakness at traditional retail outlets. Where the stock goes from here is anyone's guess, but a bullish chart and momentum in the business point to an uptrend.
Has Joann Stock Reached a Bottom?
Joann (NASDAQ: JOAN) is another small-cap retail stock that is trading near a 52-week low but experiencing a brighter technical outlook. On February 1st the classic double bottom pattern formed on Joann's daily chart.
This is characterized by a pair of distinct lows at roughly the same price level which in this case is $9. After volume fizzled out during the second leg of the double bottom, price started to trend higher as did volume. Although the upward breakout would have ideally occurred alongside a bigger volume spike, it is nevertheless a bullish signal.
The double bottom became official when Joann was trading around $11.28. This is a considerable distance from the bottom itself but a breakout from resistance near $11 was needed to confirm the pattern. Rest assured, there's still plenty of upside to be had if it follows through. Within the next two to three months, the crafty retailer is positioned to run to the $13 to $14 range.
Is Funko Stock a Buy?
Pop culture products specialist Funko (NASDAQ: FNKO) is looking like it may finally break out of a sideways trend that has persisted since the summer. On January 31st, a symmetrical continuation triangle took shape on the daily chart.
The intermediate-term pattern tells us that two converging trendlines created a triangular shape as volume diminished. The stock then broke out of a consolidation period pointing to a possible uptrend. This classic pattern has a good chance to come to fruition because there was a follow-through day in which Funko moved higher in increasing volume.
The duration of this pattern is not expected to be long, but the magnitude of the move could be powerful. Over the next few weeks Funko is poised to rally to at least $21, so we are looking at 20%-plus upside by the time February is over.
Funko will soon be reporting its fourth quarter and full year results. The report could make or break the symmetrical continuation triangle. Fortunately, the company will have the wind at its back after recording 40% sales growth and 20% profit growth last quarter.
Whether it sold enough action figures, board games, and stuffed animals to impress the market remains to be seen and supply chain challenges are a wild card. But if Funko can exceed expectations as it did a few months ago, a convincing breakout past $20 could spring a longer uptrend.
