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Technical patterns are similar to the scarecrow in the "Wizard of Oz." They may not "know" where the stock is supposed to be going, but they lead the way successfully because so many people trust in them, just as Dorothy trusted in the brainless-but-loveable character.
Like the scarecrow, chart patterns are constructs of human actions. And while the scarecrow couldn't make up his mind when it came to which path to take, certain chart patterns are very conclusive. They act almost like a GPS leading you to a stock's next move.
Golden crosses and death crosses are two particularly influential, trend-changing technical formations that forecast big intermediate-term moves in a stock.
For those who may not be aware, a golden cross is a bullish formation in which the 50-day moving average crosses above the 200-day, with the stock above both. A death cross is when the 50-day drops below the 200-day, with the stock below both.
These are typically very powerful signals. For instance, I pointed out a golden cross in Apple (NASDAQ: AAPL) on Sept. 1, and shares have rallied nearly 8% since then. My Profit Amplifier readers were able to turn the initial 2.5% move into a 20% profit in less than two weeks. (More on that in a bit.)
Now, the golden cross and the death cross do have an Achilles' heel. Without support from fundamentals (either bullish or bearish), the effectiveness of these crosses may be greatly reduced.
But I recently spotted a golden cross on another stock's chart that, like Apple, is on the comeback trail with strengthening sales and growing fundamental support from analysts.
115-Year-Old Retailer Keeps Up While Its Peers Fall Short
Nordstrom (NYSE: JWN) is a high-end clothing retailer that has been around since 1901. Starting as a boutique shoe store in Seattle, it's grown to become a household retail name in North America with 334 stores in 39 states and across Canada.
As shopping trends have evolved in both taste and method of purchase, and while other retailers were getting left behind, Nordstrom managed to adjust its businesses to cater to changing demand. Since the turnaround is still in its early innings, this should mean plenty of upside in the shares.
What you might not know is that the majority of its stores (205) are branded as Nordstrom Rack, offering discounted goods to consumers. The lower-priced goods keep the company relevant with average income shoppers, and it seems that Nordstrom has managed to successfully build on the discount outlets without destroying the company's reputation.
Nordstrom Rack's $3.53 billion in income now accounts for nearly 25% of total annual sales, compared to 18.5% just five years ago. That's proof positive that Nordstrom is growing more than just store counts.
And that growth isn't just limited to Nordstrom Rack. Nordstrom's entire ecosystem is operating in synergy as overall net revenues have grown 55% from $9.3 billion in fiscal 2010 to $14.4 billion in fiscal 2015.
Another positive surprise and potential future growth catalyst is Nordstrom's e-commerce business. In early 2015, the company laid out an e-commerce action plan that was expected to cost billions. It was an "Omnichannel" plan that integrated Nordstrom's stores and its online business. I knew it would take time to implement and there would be struggles along the way (which is why I was bearish on the stock for a bit), but the unique approach is finally paying off.
Nordstrom also has a unique edge when it comes to its store locations. A recent research report by Credit Suisse found that more than 62% of Nordstrom's 120 or so main stores are located in the "most valuable" U.S. malls. This gives the retailer a disproportionate edge over the competition by providing exposure to America's wealthy consumers. As we all know, they tend to spend money even when the average consumer might be slowing down.
While earnings per share (EPS) estimates have been on the rise, expectations remain conservative, giving the company a much lower hurdle to eclipse. I expect more upgrades from analysts leading up to the Nov. 10 earnings report and a beat from the company when it announces.
This should be a bullish catalyst for the stock, but shares are already on the move thanks to the golden cross formation.
Golden Cross Accelerates Bullish Outlook for JWN
JWN fell below its 200-day moving average in August 2015. It remained in a bearish trend until its most recent earnings report, when shares started trading back above this long-term trendline.
Shortly after shares stabilized above that level, JWN's 50-day moving average crossed above its 200-day, forming a bullish golden cross on Sept. 21.
A golden cross attracts investors scanning the markets for bullish technicals and triggers algorithms and auto-trading programs, which can quickly drive a stock higher.
Typical golden cross breakouts can move a stock anywhere between 2% and 10% in a relatively short amount of time. So, when I issued an alert on JWN to my Profit Amplifier subscribers on Sept. 30, I set a target near resistance at $54, which was about 5% above where shares were at the time.
Sure enough, the stock took off running, hitting my target in just one week. That's a nice gain for shareholders, to be sure. And given that a golden cross signals a change in trend and that it's backed by the company's positive fundamentals, more gains are almost certainly in JWN's future.
But just as I turned a 2.5% golden cross breakout into a 20% profit in Apple, I recommended a similar trade with JWN. Using a simple put option, my Profit Amplifier subscribers booked a 21.6% profit on JWN in just seven days. That's an annualized gain of more than 1,125%.
These kind of profits are not abnormal for Profit Amplifier readers. In fact, we typically make 5-10 times as much as an average shareholder while taking on even less risk. And I walk them through each and every trade. I explain the fundamental and technical reasons behind it -- such as a powerful golden cross -- and I give specific entry and exit prices so they are never left guessing what to do.
If you're interested in learning more about my strategy or finding out how to receive weekly trades, go here.
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