Though Rite Aid (RAD) may not have been strong out of the gate initially this morning, the stock is coming around and setting up to continue a bullish trend. The stock has been very strong during the last month, and while that might scare some traders away from this one, I view it as similar to Twitter (TWTR) in that I'll wait for weakness to show itself rather than try to anticipate. You could even call RAD another hot-money name, but these have been winners in the market during the past year.
Rite Aid recently pushed through the neckline on an inverse head-and-shoulders pattern, setting up a target of $9.30 for the shares in the short term. This was a tough pattern to play because earnings were going to hit in the market in the midst of the push higher. We now have a nice bullish channel as part of that breakout with a clear view of support and resistance on this one.
I've expanded the trend and momentum analysis here to try to get a view on the very short term out to the much longer ranges. The shortest-term measurement of momentum via the eight-period relative strength index shows this one is getting hot. It is just entering overbought territory, however, and so we still have the potential to run higher. Overbought can stay overbought.
I've brought in the Aroon indicator here to take a look at how Rite Aid is trading in relationship to recent highs. The green over red along with the green over 50 gives us a solid bullish trend. This indicator is looking at the number of days since a stock last made its highs or lows. In this case, I'm looking at the last 13 days. I simply want to see green stay over red and green stay over 50.
Pushing out to a longer-term reading using the moving average convergence divergence (MACD) indicator, the trend here is still strong. The crossovers using the 13,21,8 setting on the MACD have been very good at identifying inflection points. My focus here is on a combination of price, MACD and Aroon. If two of the three lose their bullish nature, then it will be time to take profits. Until then, I will continue to ride this one to the upside.
I do think this is a shorter-term story, and so I'm not going to spend a lot of time on the weekly chart; however, there is another inverse head-and-shoulders pattern present. This one is just triggering and has a big price target of around $12 per share. I think this target is a bit optimistic, but I could still see RAD in the $10-$11 range over the next nine to 12 months if we can hold this $8.50 neckline. That appears to be the key point for bulls to hold now. Any consecutive weekly closes under $8.50 and a return trip all the way down to $7 is very much on the table.
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