EZCORP (EZPW) operates a chain of pawn shops in the U.S., Canada and Mexico, providing loans collateralized by personal property and selling forfeited and used merchandise. It is a small-cap company in a business that makes it the perfect contrarian indicator for the market and the economy. It has underperformed the S&P 500 index by 336% since its 2011 high. If this inverse correlation continues, however, it might not be good news for the broader market, because EZPW shares look ready to break out of a major consolidation pattern.
The weekly chart shows the stock pulling back from the 2016 rally high in November and retracing nearly 50% of the move. This year it has traded in a $2 range between $9.50 resistance and $7.50 support, forming a W basing pattern. Last week, it broke above the upper boundary of the pattern and the stock is seeing follow-through price action this week. The “W” patter projects a large-percentage move higher.
The relative strength index has crossed above it 21-period average and centerline and moving average convergence/divergence has made a bullish crossover. These are indications of improving intermediate-term price and short-term trend direction. The July bottom marked the second channel low and the bounce off that level was powered by an increase in positive money flow.
Chaikin money flow moved above its center line and has continued to track higher and the accumulation/distribution line jumped above its 21-period signal average. The price consolidation this year has flattened the Bollinger bandwidth reading and periods of low volatility like this are often followed by periods of high volatility. This means the potential breakout move could be sudden and strong.
The W pattern projects an upside price target measured by taking the height of the channel and adding it to the resistance level. It targets the area of the 2016 high or about a 20% move.