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Orchard Supply Hardware up 57 Percent Monday

Shares of Orchard Supply Hardware (NASDAQ: OSH) were up 57 percent Monday following a more than 20 percent move to the upside Friday. The stock was up as much as 96 percent before circuit breakers halted the stock. When it reopened, it had reversed to a 57 percent gain.

Why the stock is up nearly 80 percent in two trading sessions is unknown. The company hasn’t reported any notable news.

Orchard Supply Hardware is an operator of neighborhood hardware and garden stores that specialize in paint, repair, and backyard products. The company has 92 stores in California.

One reason the stock continues higher is the continued bullish sentiment in the housing market. Stocks like Home Depot (NYSE: HD) have had a banner year on the back of a housing market that continues to improve rapidly.

Second, the stock had a 24 short interest making it likely that the stock is being propelled higher due to a short squeeze.

Technical Analysis

The recent move in Orchard Supply Hardware is impressive, but what isn’t so exciting is the 85 percent move to the downside over the past year. It’s trading in a well defined bearish descending channel but the stock has been in a basing pattern since mid April. This could indicate that a bottom is in for the stock.

Investors should be careful of this outsized move to the upside. The stock is likely to fill the gap left over the past two trading sessions.

Also important to note, this is a small cap stock that trades an average of 166,000 shares daily. Small cap speculative aren’t necessarily a better value because they’re cheap.

Disclosure: At the time of this writing, Tim Parker was long Home Depot.

[stock-tools exchange="NASDAQ" symbol="OSH" image_height="180" image_width="300"]

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