Pattern Play: Bed Bath and Beyond

Upside breakout from a descending broadening wedge pattern.

New Highs 4

Bed Bath and Beyond (BBBY), the home furnishing retail chain, gapped up 22.2% and broke out of a long-term descending broadening wedge pattern that price has been declining within since mid-2018. The company reported second quarter earnings this morning before the bell and beat the forecast for both EPS and net sales.   

Looking at a weekly chart, BBBY's stock price has formed a very wide candlestick to the upside. The high of the day so far has risen just above the 200-week simple moving average (SMA). The RSI is showing bullish momentum and has entered over bought territory above 70.     

Source: GAIN Capital, TradingView

Looking at a daily chart, BBBY's stock price has been rising in an uptrend since April after price bounced off of the lower trendline of the descending broadening wedge pattern. Price appears to have formed a runaway gap, however this will only be confirmed if price continues to advance in its uptrend. With this type of momentum and given how the weekly chart looks, price will likely continue its advance and break through the 21.45 and 24.00 resistance levels, which were last reached in 2018. If price can get above both of these levels it could be the beginning of a long-term uptrend. On the other hand, because of how large the gap in price is, and that it occurred at the breakout of a pattern, price could technically retrace quite a bit while maintaining a bullish bias. If price turns down traders should look for rebounds off of the 17.80 and 16.40 support levels, which were last touched in 2019. If price breaks below both of these levels the last line of support is the upper trendline of the pattern. If price cannot find support at the upper trendline of the pattern, then the breakout will have failed and we could see price fall. Given the magnitude of the gap traders should be prepared for a lot of volatility in BBBY's stock price.           

Source: GAIN Capital, TradingView

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