Naked Brands Stock Consolidates A Parabolic Run: What's Next?

On Sept. 24 Naked Brand Group Ltd NAKD chairman and CEO, Justin Davis-Rice, announced the intimate apparel and swimwear company had potentially found an opportunity in the clean technology sector.

“We have made significant progress over the past few weeks and believe the path to a definitive agreement is in sight,” Davis-Rice wrote in a letter to shareholders.

Following the announcement, Naked Brand’s stock gapped up over 11% higher on big bullish volume. The stock continued to trade higher on Monday and Tuesday, but may have reached a volume climax.

See Also: How to Buy Naked Brand Group Stock Right Now

The Naked Brands Chart: On Sept. 22 Naked Brands broke up bullishly from a falling wedge on the daily chart. On Sept. 23 the stock attempted to bust through a resistance level at the 62-cent mark, but rejected and closed the trading day down just over 2%.

The news of a possible merger or acquisition then propelled Naked Brands up to a peak of 94 cents, where the stock ran into a group of sellers.

When a stock moves in a parabolic fashion it often creates a volume climax. For technical traders, extreme bullish volume with a steep price movement to the upside is a sell signal, while abnormally high bearish volume with a sharp sell-off is a buy signal.

On Wednesday Naked Brand’s stock was trading down about 4%, which confirms the volume climax. The stock will likely need time to consolidate in order to cool off its relative strength index (RSI), which reached an uncomfortably high 73% on Tuesday.

Naked Brands is trading above the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending above the 21-day, both of which are bullish indicators. The stock is also trading above the 200-day simple moving average, which indicates overall sentiment is bullish.

• Bulls want to see continued consolidation for Naked Brand to create some new support levels above the 72-cent area. The stock has resistance above at 85 cents and 93 cents.
• Bears want to see continued bearish volume drop the stock down below the 72-cent level. If Naked Brand loses the area as support, it could revisit lower support at 62 cents.