Mike is a regular reader and he asked if I’d take a look at the El Pollo Loco chart. Here goes:
El Polo Loco Holding (LOCO) has been trading for less than a year and on the weekly timeframe many of the moving averages and technical indicators have not had time to become useful tools. It is always raw price action and not the data that is filtered out that determines the trade, and that is what we’re looking at with this chart. The stock spent the two weeks after its IPO moving straight up before valuation concerns caused early investors to start taking profits in the $40.00 area. It pulled back and then bounced in the $28.00 area, about a 50% retracement of its initial range, and then began trading in narrower ranges around its 10 week (50 day) moving average. This price action created a large wedge or symmetrical triangle pattern that was broken hard in November after a good earnings report but concerns over higher chicken prices. The price of chicken is something that technical analysts don’t have to worry about, but, of course, the pattern breakdown was important, and the stock dropped sharply and significantly before it found support in the $20.00 area. Shares of El Pollo Loco have spent this year establishing a foothold above their 50 day moving average and beginning a slow and steady climb back up towards the 38% retracement level of August high and December low. This $28.25 level has been resistance for the last month during which time Chaikin Money Flow has moved towards positive territory and the RSI has moved above its centerline.
On the daily timeframe, the recent consolidation under Fibonacci resistance can be seen as a small inverse head and shoulders formation, with the head holding above an uptrend line drawn off the lows of this year and the neckline the first level of retracement. The price and money flow momentum indicators are all tracking above their centerlines and higher, and the stock looks like it is preparing to take out resistance. The trade is to wait for a confirmed breakout in upper candle range, and place a percentage trailing stop that fits your money management plan, because you never know what’s going to happen with chicken prices. They’re crazy.