RH, formerly known as Restoration Hardware, (RH) gapped higher Wednesday in reaction to their Q4 earnings announced late Tuesday. This upside price gap may be exciting on a day when downside price gaps seem to be the norm, but a look at the bigger picture of RH should put this strength into perspective.
In this updated daily bar chart of RH, below, we can see that prices have been in a downtrend since early December. The slope of the 50-day moving average line has been negative since early February and the rising 200-day moving average line has been tested many times this month.
RH gapped above the 200-day line and the 50-day line today but this upside "pop" may not be long sustained. The $95-$110 area on the chart is likely to act as resistance as prices stalled in that area since November.
The daily On-Balance-Volume (OBV) line peaked in late January and has been declining for two months. For two months sellers of RH have been more aggressive than buyers.
Earlier this month the daily Moving Average Convergence Divergence (MACD) oscillator turned up to a cover shorts buy signal but has a ways to go before crossing the zero line for an outright go long signal.
In this weekly bar chart of RH, below, we can see that prices are now trading above the cresting 40-week moving average line. The weekly OBV line shows weakness since the middle of January.
The weekly MACD oscillator turned down in December for a take profits sell signal. The MACD oscillator is still pointed down and it will likely take a few weeks for the two moving averages to narrow assuming the price strength today can endure.
In this Point and Figure chart of RH, below, we do not show price gaps. All the boxes are filled in with "X's". An upside price target of $132.98 is being projected but there is significant overhead resistance.
Bottom line: Can RH overcome the chart resistance in the $95-$110 area and rally to $133? It is possible but with four months of chart resistance from $95 to $110 I would not buy out of the money calls. Right now I would wager that the December highs on RH are not broken.