For his "Executive Decision" segment on "Mad Money" last Friday, Jim Cramer welcomed back Gary Friedman, chairman and CEO of RH (RH) , to talk about his company's remarkable quarter that sent shares gapping higher.
Friedman started off by saying that "people continue to misunderstand us." He said they're confused by their business model and assume that if retail is under attack, RH must be under attack as well. In reality, RH plays on a "different level," Friedman said, and that was proven in last quarter's surprising results.
When asked about the effect of tariffs on RH's business, Friedman said he can't be over-reactive to short-term noise. He said it's more risky to try and move supply chains on a short-term basis than it is to deal with tariffs that could be resolved tomorrow. RH is constantly looking for opportunities. If there are better long-term solutions, they will embrace them, as it already has with its North Carolina manufacturing facility and other operations around the globe.
In the end, balancing trade is a good thing for the U.S., Friedman said, and RH will be ready to prosper from that. Let's check and see what the charts and indicators reflect for RH.
In this daily bar chart of RH, below, we can see that prices have made lower lows and lower highs the past 12 months. The chart shows a number of price gaps and strong volume, but the downtrend endured. Prices gapped higher last week but stopped at the underside of the declining 200-day moving average line and nearly filled a downside gap from late March. There were some bounces but for much of the past year the On-Balance-Volume (OBV) line declined, signaling that sellers of RH have been more aggressive than buyers. In the lower panel is the 12-day price momentum study, which shows improving or slowing momentum from April to May while prices made lower lows -- this is a bullish divergence and with hindsight foreshadowed the rally this month.
In this weekly bar chart of RH, below, we can see a mixed pattern with the price action and indicators. Last week prices rallied to the underside of the bearish 40-week moving average line. There looks like there is considerable chart resistance from $120-$160. The weekly OBV line shows a decline from March after several months moving sideways. The chart pattern on RH from May 2018 could be a triple top. The weekly Moving Average Convergence Divergence (MACD) oscillator shows two take-profits sell signals in the past year and an outright sell signal in March of this year, when the indicator moved below the zero line.
In this Point and Figure chart, below, we can see sharp moves lower and moves higher without the gaps. This charting technique fills in the gaps. The chart shows that RH reached and exceeded an upside price target around $108. The chart shows the break of a downtrend, but no significant base or accumulation pattern.
Bottom line strategy: RH may be executing well in a challenging environment for retail, but investors and traders have not shown a strong and lasting desire to accumulate (buy) shares. A retest of the June low would not surprise me in the weeks and months ahead.