(This commentary originally appeared on Real Money Pro at 1 p.m. ET today. Click here to learn about this dynamic market information service for active traders.)
H&R Block (HRB) hasn't been an exciting stock lately. The tax preparation specialist lost nearly 31% of its value last year, the stock's second consecutive losing year.
Before you write this stock off as a loss, you should know that H&R Block is bouncing back in a big way in 2017. Yesterday's close placed the stock just $0.25 below a one-year closing high. The stock is up 36% year to date, and if H&R Block's chart is to be believed, further gains could be realized.
The company is in the middle of a strong uptrend, indicated by a strong bullish trendline that started forming in late February (dotted line). That trendline closely matches the stock's 50-day moving average (red), giving it added support. Block's MACD (moving average convergence divergence) indicator flashed a buy signal on Monday (shaded yellow).
Source: Trade Station
Can the stock continue its impressive run? To answer this question, we looked at the weekly chart. There, we can see that the stock has an additional 10% upside before it encounters its first serious resistance level, just above the $35 area (green line). Beyond that, the next level of resistance for this stock is in the $37 area (blue line).
Source: Trade Station
Why is H&R Block rallying? The rally kicked off six months ago, when the company announced fiscal third-quarter earnings. At the time, which was during the tax off-season, Block announced that it was shedding customers at a slower pace than its rivals. The stock jumped 15%.
Three months ago, when Block announced fiscal fourth-quarter earnings, the stock climbed another 10%. This time, Block gained market share on Intuit's INTU TurboTax line of products.
Now H&R Block is lighting up the charts as the company's fiscal first quarter earnings report approaches. The company is scheduled to report on Aug. 29, a mere two weeks from now.
When a stock rallies into earnings as Block is doing now, it is sometimes a precursor to good news. The flip side of this is that any potential good news is already being priced into the stock. This reduces the chance of a further rally after earnings, even if the company releases an impressive report.
Therefore, the preferred tactic would be to enter a small position now. If the stock falls after a strong report, I'll add to the position. If the report is less than impressive, I won't add to it at all, and I'll close the existing trade for a small loss.