We haven't looked in on Red Hat Inc (RHT) for a while, but we were bullish on the stock: "RHT is more than ready for further strength. Aggressive traders could buy RHT here and add on strength above $85. Our price objectives are $94 and then $107. I would risk below $79 for now."
See Jim Cramer's take on Red Hat in today's piece: Top 10 Tech Stocks Compared to the Dotcom Era (Part I)
Since the end of March, RHT has rallied to overshoot our $94 price target and stop short our $107 secondary target. It gapped sharply higher last month and prices have filled part of that price void. Is this pullback nearly over, or are we likely to fill the entire gap? What strategy is likely to be best under these circumstances? Let's have a look.
In this daily bar chart of RHT, above, we can see how prices have climbed from their late December lows around $70. Prices rallied quickly with tests of the rising 50-day moving average line in May and June. Volume surged on the June price gap, but the pace quickly slowed, leaving me with the feeling that longs used the price gap more to sell than to buy.
The On-Balance-Volume (OBV) line jumped higher in June with the gap, but has subsequently turned flat. The trend-following Moving Average Convergence Divergence (MACD) oscillator just crossed to the downside for a take-profits sell signal.
In this weekly chart of RHT, above, the price gap disappears. Prices are above the rising 40-week moving average line. The weekly OBV line has been positive for most of the past three years, but the line has been flat over the past three months and does not confirm the new price high. The weekly MACD oscillator almost crossed in June, but has turned bullish again.
In this Point and Figure chart of RHT, above, we can see that it has left its $83.34 price target in the dust. Point and Figure charts do not show price gaps. Support on this chart looks like it would be anticipated around $90, which would fill the gap.
Bottom line: I am not seeing a lot of sell signals on RHT, but it has reached our first price target, and this is tugging at me to suggest taking partial profits. A bounce to $98 or so that fails would be a reason to sell the remaining balance.