STOCKS: Tractor Supply Forming Bullish Set-Up

Stocks building bases aren't easy to find these days but retailer Tractor Supply (TSCO) is in a bullish setup that could yield a breakout soon.

Some mild distribution hit the major averages earlier this week but stocks bounced back bullishly on Thursday. Tractor Supply outperformed, rising 2.8% to $99.91. I haven't seen much of in the way institutional buying in Tractor Supply in recent weeks. Most of its price gains have come in below average volume. It's a concern but not a deal breaker.

Tractor Supply started to consolidate gains in April. It corrected 25% and hit a low of $75.46 in July. It's been working on the right side of its second-stage base ever since. Earlier this month, shares hit an intraday high of $101.28. It's been drifting lower, showing tight price action as the last remaining sellers exit the stock. This is constructive action to see ahead of a possible breakout.

The company, with a market capitalization of just over $7 billion, operates retail farm and ranch stores across the U.S. At the end of the second quarter, it operated 1,135 stores in 45 states. During challenging economic times, including a severe drought in the Midwest, Tractor Supply has been able to delivery consistent growth quarter after quarter. Shares gapped in late July after the company reported quarterly profit of $1.45 a share, up 18% from a year ago. Sales rose 10% to $1.29 billion.

Major averages remain in uptrends so technical setups like Tractor Supply's should be watched closely. When it comes to the overall action in leading stocks and the major averages, I'm still not seeing much in the way of sell signals. Since Aug. 21, the Nasdaq Composite shows just two higher-volume declines.

The market trend remains upward for now, which is usually a good environment to make money in stocks.

[Editor's note: Join Ken Shreve each afternoon live daily TFNN radio show from 3-4 ET.]

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