Naked Brand Group Ltd (NASDAQ:NAKD) opened higher on Monday but eventually continued the much-needed consolidation Benzinga called out last Wednesday.

Between Aug. 24 and Aug. 26, the stock ran almost 40% higher. This put Naked Brand’s relative strength index above 70% and into overbought territory, which is a sell signal for technical traders.

In extended hours on Friday, an institution completed a block trade of 1.1 million Naked Brand shares at 67 per piece. The order cost the institution a total of $737,000 and if it sold at the high of 73 cents on Monday morning, the trader would have made a profit of $66,000.

See Also: 28 Stocks Moving in Monday’s Pre-Market Session

Why It’s Important: When a block trade occurs it indicates a hedge fund or institution has taken a position in common shares. A block trade always involves large sizing and is typically handled by a blockhouse privately and outside of the open market. Because block trades don’t happen on the open market, the large size of the trades doesn’t create volatility in the stock being traded.

These types of purchase orders are made by institutions purchasing a large number of a security and retail investors can find watching for block trades useful because it indicates “smart money” has entered into a position.

The Naked Brand Chart: Naked Brand’s 40% rise paired with the consolidation on Friday and Monday, setting the stock into a bull flag pattern on the daily chart. The consolidation has also helped Naked Brand’s RSI to cool down to a more comfortable 64%.

On Monday, Naked Brand had relatively low volume which indicates the sideways trading action taking place on lower timeframes is consolidation as opposed to big bear volume. By mid-morning only 28.20 million shares of Naked Brands had changed hands compared to the average 10-day volume of 91.31.

Naked Brand is trading above the eight-day and 21-day exponential moving averages with the eight-day EMA trending above the 21-day, both of which are bullish indicators. The stock is also trading above the 200-day simple moving average which indicates overall sentiment in Naked Brand is bullish.

• Bulls want to see continued consolidation and then for big bullish volume to come in and break Naked Brand’s stock up from the bull flag formation. The measured move if the pattern is recognized is 40%, which would bring Naked Brand’s stock up toward the 90-cent level. Before potentially reaching the level there is resistance above the stock that will have to battle through first at 72 cents and the 85-cent mark.
• Bears want to see big bearish volume come into Naked Brands to drop the stock under support at the eight-day EMA which would negate the bull flag. The stock has support below 62 cents and below the level, there is further support near the 50-cent area.

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