El Pollo Loco (LOCO) May Find a Bottom Soon, Here's Why You Should Buy the Stock Now

The price trend for El Pollo Loco Holdings (LOCO) has been bearish lately and the stock has lost 7% over the past week. However, the formation of a hammer chart pattern in its last trading session indicates that the stock could witness a trend reversal soon, as bulls might have gained significant control over the price to help it find support.The formation of a hammer pattern is considered a technical indication of nearing a bottom with likely subsiding of selling pressure. But this is not the only factor that makes a bullish case for the stock. On the fundamental side, strong agreement among Wall Street analysts in raising earnings estimates for this Tex-Mex fast food chain enhances its prospects of a trend reversal. Understanding Hammer Chart and the Technique to Trade ItThis is one of the popular price patterns in candlestick charting. A minor difference between the opening and closing prices forms a small candle body, and a higher difference between the low of the day and the open or close forms a long lower wick (or vertical line). The length of the lower wick being at least twice the length of the real body, the candle resembles a 'hammer.'In simple terms, during a downtrend, with bears having absolute control, a stock usually opens lower compared to the previous day's close, and again closes lower. On the day the hammer pattern is formed, maintaining the downtrend, the stock makes a new low. However, after eventually finding support at the low of the day, some amount of buying interest emerges, pushing the stock up to close the session near or slightly above its opening price.When it occurs at the bottom of a downtrend, this pattern signals that the bears might have lost control over the price. And, the success of bulls in stopping the price from falling further indicates a potential trend reversal.Hammer candles can occur on any timeframe -- such as one-minute, daily, weekly -- and are utilized by both short-term as well as long-term investors.Like every technical indicator, the hammer chart pattern has its limitations. Particularly, as the strength of a hammer depends on its placement on the chart, it should always be used in conjunction with other bullish indicators.Here's What Increases the Odds of a Turnaround for LOCOAn upward trend in earnings estimate revisions that LOCO has been witnessing lately can certainly be considered a bullish indicator on the fundamental side. That's because empirical research shows that trends in earnings estimate revisions are strongly correlated with near-term stock price movements.Over the last 30 days, the consensus EPS estimate for the current year has increased 3.3%. What it means is that the sell-side analysts covering LOCO are majorly in agreement that the company will report better earnings than they predicted earlier.If this is not enough, you should note that LOCO currently has a Zacks Rank #1 (Strong Buy), which means it is in the top 5% of more than the 4,000 stocks that we rank based on trends in earnings estimate revisions and EPS surprises. And stocks carrying a Zacks Rank #1 or 2 usually outperform the market. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>Moreover, a Zacks Rank of 1 for El Pollo Loco is a more conclusive indication of a potential trend reversal, as the Zacks Rank has proven to be an excellent timing indicator that helps investors identify precisely when a company's prospects are beginning to improve.Research Chief Names "Single Best Pick to Double"From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report El Pollo Loco Holdings, Inc. (LOCO): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks