A Bollinger Band break has been the best "buy" indicator since 2016
The best "buy" signal since 2016 has been the
Bollinger Band breach, as Schaeffer's Senior Quantitative Analyst Rocky White noted in a recent comparison of eight trading indicators. In the past year, stocks that broke below their lower Bollinger Band went on to average a one-month return of 2.91%, and were positive about two-thirds of the time. We asked Schaeffer's Senior Equity Analyst Joe Bell, CMT, to weigh in on a couple of stocks that recently broke below their lower Bollinger Band, and that look most attractive from a sentiment and price perspective. He singled out the shares of natural gas concern
Chesapeake Energy Corporation (NYSE:CHK) and tax issue
H & R Block Inc (NYSE:HRB).
Analysts Have Yet to Acknowledge CHK's Massive YoY Gains
Bell notes that CHK has been in a "solid uptrend since forming a bottom" one year ago, and is "pulling back to an ascending trendline connecting the higher lows since this bottom." What's more, CHK's 200-day moving average is just below the shares. Despite the stock's year-over-year gain of more than 210%, only four out of 21 analysts offer up "buy" recommendations -- leaving the door wide open for upgrades to lure more buyers to the table. Plus, 14.2% of CHK's float is sold short, suggesting there's plenty of potential buying power still sitting on the sidelines. (And
seasonality doesn't hurt, either.)
HRB Testing the Bottom of Its Recent Range
"HRB has been in a trading range since the end of August 2016," Bell notes. The stock is "right near the bottom of this range, at $21, and the $24 area has been the top of the range" -- leaving room for about 11% upside from current levels. Plus, the stock's 14-day Relative Strength Index (RSI) just crossed back above the oversold 30 level -- another positive sign. As with CHK, HRB remains plagued by pessimism. The stock is "highly shorted, as it would take nine days to buy back these bearish bets," at HRB's average pace of trading. Although options volume is light on an absolute basis, buyers have picked up HRB puts over calls at a faster-than-usual clip during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Plus, seven out of nine analysts rate HRB a "hold" or worse. A rebound off familiar support could spark a fresh bearish exodus for H&R Block.
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