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On Tuesday, I bought a starter swing long position in Medifast at $30.46 inside 12631, with the intention of adding on strength. In addition to the daily chart acting very well throughout 2012, but especially outperforming the market in recent months, the weight management firm is headed into a very seasonally strong few months (more on this later).
More importantly, though, the monthly chart of Medifast reversals a noteworthy configuration. The “Bullish Rising Three Methods” is a rare but extremely bullish pattern. It is a “five stick pattern,” meaning it takes five separate candlesticks to meet the elements of the pattern. Within the context of a prior uptrend on a given timeframe (here, monthly), we see a long green (or white, depending on your charting software) candle which obviously illustrates further strong bullish momentum, followed by three small red (or black) candles denoting consolidation. At that point, the bulls arrive impressively once again for another long green candle to exceed the highs from the prior long green candle.
In essence, the pattern denotes a textbook bullish, tight consolidation that confirms higher without any nonsense, or too much backing and filling beyond the three small red candlesticks. The three small red candles should stay within the price range of the first long green candle. Now, in this case with the Medifast monthly chart, we can see the first red candle does make a new high. However, it would be more of a problem is the lows of the first green candle were breached, rather than the highs. Furthermore, the gist of the pattern here is that the third and final red candle does not come close to penetrating most of the upside progress made by bulls during the first long green candle.
As such, I am playing Medifast under the thesis that the breakout on the daily chart is just getting started, and all-time highs will be exceeded in the coming weeks. Although my stop-loss will trigger well before it happens, a weekly close below $25 casts doubt on that thesis and the whole pattern in general. That said, the Bullish Rising Three Methods is rare, powerful, and should be respected.
Also, courtesy of The PPT, note the seasonality statistics for Medifast as we head into December and, of course, New Year’s resolution-ridden January. While far from a sure thing (the stock was down several times in December and January as well), when the stock was up, it was up big-time in those months. These data points add more substance to the Bullish Rising Three Methods into December and January.
Seasonality
| Month | Avg % Return | Total # Months | # Months UP | # Months DOWN |
|---|---|---|---|---|
| January | 12.407 | 19 | 9 (47.37%) | 10 (52.63%) |
| February | 6.588 | 19 | 10 (52.63%) | 9 (47.37%) |
| March | -0.125 | 18 | 8 (44.44%) | 10 (55.56%) |
| April | 4.238 | 17 | 9 (52.94%) | 8 (47.06%) |
| May | 7.354 | 18 | 7 (38.89%) | 11 (61.11%) |
| June | 2.153 | 17 | 6 (35.29%) | 11 (64.71%) |
| July | 14.227 | 19 | 11 (57.89%) | 8 (42.11%) |
| August | -3.858 | 19 | 7 (36.84%) | 12 (63.16%) |
| September | -2.44 | 18 | 6 (33.33%) | 12 (66.67%) |
| October | 7.743 | 19 | 10 (52.63%) | 9 (47.37%) |
| November | -0.047 | 19 | 7 (36.84%) | 12 (63.16%) |
| December | 3.768 | 16 | 7 (43.75%) | 9 (56.25%) |
Low volume, but nice. Thanks Chess for teaching us how to fish.
Chess, sorry I meant thinly traded.
no problem, Jimbo. Thanks