By the close of last week, RadioShack (RSH) had given back the bulk of its powerful June 26 breakout. News of an agreement with Verizon (VZ) far overshadowed the company's second-quarter earnings miss. Investors reacted very positively to the Verizon news, lifting shares to a huge gap-higher open. RSH finished the June 26 session with a 20% gain on extremely heavy volume.
As the week continued, the upside momentum faded, and by late Friday the stock was trading back down near key support at its early July peak. Today, RSH is showing some resilience in the face of a steep downside market reversal. The stock is well off its early highs but has remained above Friday's lows. The $14 area is providing support, allowing RSH to settle in after last week's volatile action.
A key element to the divergent strength today is a big upgrade from Goldman Sachs. Analysts there have placed the stock on its Conviction Buy list, after an upgrade from Neutral to Buy. Goldman now expects RSH to reach $18 with the help of its improving wireless position.
RadioShack's final leg lower began on June 1 with a nasty downside reversal day. RSH lost 4% on the day, sparking a deep selloff the pushed the stock to new 52-week lows during a 10-straight-day losing streak. Two weeks into the month, the stock was 22% below the May close and trading at a two-year low. After reaching a deep oversold level, RSH managed a shallow bounce, but the relief rally was short lived. By mid-July, the stock was back below $12.50 and nearing its June lows. The stock held in well as selling pressure remained below average, allowing RSH to successfully re-test the lows. On the strength of last week's breakout, RadioShack has left behind what could potentially develop as a major double bottom near $12.30.
A key support band is now in place from $13.25 to $14. The lower end of the band includes the huge gap left behind after last Tuesday's open and runs up to the early July highs of $13.90. I expect this support zone to allow the stock to build a base after last week's fade. I believe the area of the June-July bottom is safe and will go untested in the near term. RSH is set up well for a return to rally mode and is near a very low-risk buy area. I am a light buyer today near $14.01 and will be adding on further weakness. A close back below the $12.25 would change the picture dramatically, but at this point I believe that is unlikely. I expect RSH to make a run at its 200-day, currently at $16.25, in the coming months.