Ross Stores (ROST) broke out to new highs in the past few sessions with a surge in volume confirming the price strength. What new levels should we set our sights on as holiday shoppers begin to part with their dollars?
In this 12-month daily chart of ROST, we can see that prices have been trending higher for much of 2016, albeit with normal corrections along the path:
The chart above indicates that the stock's March-through-June correction saw more downside than ROST got during a "sideways correction" that began in August and lasted through November's first half. This indicates that buyers are being more aggressive than they would be in a "true" correction, which would have given the stock a lower low.
Things also come together when you look at the On-Balance-Volume line's movement before and during these corrective periods. Ross Stores' OBV line neither rose nor declined that much in the period before the first correction, but had a stronger rise prior to the second correction beginning in August. This tells us that buyers were being more aggressive in the second period.
The OBV's subsequent weakness suggests more profit-taking, but prices have actually held up better. Very interesting! Both the 50- and 200-day moving averages' lines had positive slopes heading into the recent upside gap and new highs. The OBV line also moved up close to a new high, while the momentum study didn't diverge from the price action. That's all bullish.
This three-year weekly chart of ROST shows all of the right moves as well:
Notice the rising 40-week moving average for much of the past three years, along with a rising weekly OBV line for a lot of the time (including the past year). We can also see a bullish Moving Average Convergence Divergence oscillator (MACD) with a fresh buy signal.
Taking the recent sideways consolidation's height and adding it to the breakout gives us a $70 price target for the stock, which was trading at $69.20 at last check on Friday. Doubling the height gives us a $75 target, while a quick glance at a 3X1 point-and-figure chart (not shown) gives us a $94 longer-term price target.
My advice: start with a $75 price target for ROST and see how things go from there.