As I often state in my newsletters, it never hurts to have stocks in your watch list that present you with trading opportunities regardless of what direction the market heads. One such stock that fits the description of giving you a trade either way would be that of GNC Holdings, Inc.
GNC Holdings, Inc. operates as a specialty retailer of health and wellness products. Its products include vitamins, minerals, and herbal supplement products, as well as sports nutrition and diet products. The company sells its products under its GNC proprietary brands, including Mega Men, Ultra Mega, GNC Total Lean, Pro Performance, and Pro Performance AMP, as well as under third-party brands. As of December 31, 2011, it had approximately 7,600 locations, including approximately 5,900 retail locations in the United States comprising 924 franchises and 2,125 Rite Aid franchise store-within-a-store locations; and franchise operations in 53 countries. GNC Holdings, Inc. sells its products through company-owned domestic retail stores, domestic and international franchise activities, third-party contract manufacturing, e-commerce, and corporate partnerships.
To review GNC’s stock, please take a look at the 1-year chart of GNC (GNC Holdings, Inc.) below with my added notations:
Over the last (2) months, GNC has been consolidating within a couple of short-term price levels. First, GNC has formed a clear support level at $35 (navy). In addition, the stock has also been forming a down trending resistance level (blue), which has now been tested (3) different times. These two levels combined have GNC stuck within a common chart pattern known as a Descending Triangle that will eventually have to break one way or another.
The Tale of the Tape: GNC is currently trading between its down trending resistance and $35 support. A long trade could be made on a break above the down trending resistance with a stop placed under the breakout point. Or, you could enter a short trade on GNC if the stock breaks below the $35 support level. In that case, a stop should be placed above the level of entry.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT