Ulta Beauty (ULTA) was raised to a buy recommendation by a sell side firm Friday as the beauty products retailer blew away the earnings and revenue numbers expected by analysts. Let's check out the charts and indicators to see if we should go long with the market or wait for a pullback.
In this daily bar chart of ULTA, below, we can see that prices rallied Thursday to the underside of the cresting 200-day moving average line. Often the underside of the 200-day line can operate as resistance, but prices for ULTA were trading about 8% higher in the pre-market Friday. This early price strength would put ULTA above the 200-day line and the 50-day line. Trading volume is probably going to be heavy Friday as traders and investors react to the earnings news. The On-Balance-Volume (OBV) line made a higher low in May when prices made a lower low -- a bullish divergence. The Moving Average Convergence Divergence (MACD) oscillator has been narrowing and could soon cross to the upside for a cover shorts buy signal.
In this weekly Japanese candlestick of ULTA, below, we can see lower shadows below $340 in the two most recent weeks, telling us that prices declined to a level or area where traders were rejecting the lows. Prices in the pre-market are back above the 40-week moving average line and could close above it today. The weekly OBV line has been strong since early 2020. The MACD oscillator is pointed down but still above the zero line. The strong rally this week could turn this indicator higher.
In this daily Point and Figure chart of ULTA, below, we can see a potential upside price target in the $482 area.
In this weekly Point and Figure chart of ULTA, below, we can see a downside price target of $221. This target could change soon.
Bottom line strategy: Price gaps and strong rallies are hard to navigate because it makes deciding on a stop loss order hard. Strong moves can be partially retraced, but the fear of missing out can push us to make purchases that could prove risky. I want to watch and wait on ULTA before jumping in. Email me your thoughts.
