It is no secret that Party City (PRTY) has been our favourite chart over on the Equity Guru Discord Trading Room Channel. We have been watching it with great interest, and some members have begun opening positions. Well, it seems that the PRTY is getting started!
The chart is what has our attention. As my readers know, markets move in three ways: uptrend, range and a downtrend. Our job is to look for charts with a prolonged trend, as they have a higher chance of reversing. This reversal comes in the form of patterns such as a head and shoulders, a range/consolidation, or a double bottom/top. On the chart of PRTY, you can see we do have a larger head and shoulders set up forming. In fact we have a rare instance here: not only do we have an inverse head and shoulders on the daily chart, but also on the weekly and the 4 hour chart! All longer term time frames are pointing to a move higher!
Hence why my take profit level is around 6.00, anticipating the gap being filled, and the momentum that will bring. As you can see, the trade has a risk vs reward of 1:3 which is excellent. Our stop loss is placed below 2.00. There are two important reasons for this. Firstly, the higher low that we are working with is at 2.00. Meaning as long as price remains above 2.00, we are technically in an uptrend. Secondly, 2.00 is where a Party City executive bought shares on the open market.
Independent director and chair of the board of directors, Norman Matthews, has purchased 250,000 shares of the company on the open market, at prices averaging $2 a share. Matthews now owns some 748,084 shares of Party City stock. Earlier this month, stakeholder Clifford Sosin, spent a total of $2.54 million on three separate purchases, picking up over 1.38 million shares to add to his block.
In recent weeks, the company has also reset its capital position, turning over more than 84% of its existing debt notes. Earnings and revenues both declined through 1H20, but the company has $290 million in available liquidity to lean on as normal operations resume.
We have discussed Party City as being our Halloween play. Even as far as saying Halloween is being priced in. A big negative fundamental news which could affect the share price would be if Halloween is cancelled due to Covid. Although, members of our Discord Channel have said this might not be the case, as parents would still just buy costumes and decorations for their kids in order to celebrate Halloween at home.
It is a stock that has been beaten up for obvious reasons, but as Covid restrictions begin to loosen, Party City is a stock to watch. Definitely not an ordinary play, but the chart looks great, and I believe this is a stock floating under the radar with great technicals and fundamentals backing it.