Squeeze Play For Big Lots

This closeout store stock has reached a six-month low in volatility. Bollinger predicts a busy season for the stock.

Tweet

One of the chart formations that John Bollinger always keeps an eye out for is known as " The Squeeze." Bollinger is the editor of the Capital Growth Letter and the inventor of the popular technical indicators that bear his name: Bollinger Bands. "Academic research has shown that volatility, unlike price, is cyclical," Bollinger says. "That means low volatility is essentially a forecast for high volatility." The Squeeze gets its name from the contraction of the Bollinger Bands, which measure volatility, around a stock's price pattern. One such stock undergoing The Squeeze is Big Lots. The company is a closeout retailer that operates nearly 1,400 stores in the U.S. and sells everything from food to clothes to sporting goods. Big Lots' stock currently trades for $15.40 per share.

Dan Sullivan's The Chartist is the #1 ranked technical analysis newsletter for the past 20 years. Dan's just released his relative strength leaders for July. To download his picks, click here.

"Since the stock has been very strong recently, this is a trade for aggressive traders," Bollinger says. "But Big Lots is at its lowest volatility of the year and has gone through a consolidation which is being resolved to the upside." He thinks that the release of this pent-up volatility will move Big Lots higher because of an indicator he follows called intraday intensity. This attempts to measure what institutional block traders are doing and to determine whether the pressure is coming from the buy side or the sell side. In the case of Big Lots, Bollinger believes that it has the institutional wind at its back: The intraday intensity indicator has been positive for nearly three months, indicating a lot of institutional buying interest. Chartroom thinks the stock could climb at least 25%. Bollinger suggests putting a stop in at $14.