The price strength of Ulta Beauty, Inc. (ULTA) could be as fleeting as beauty itself. Prices gapped higher the other day, but this may become an exhaustion gap instead of a breakaway gap.
Let's inspect the charts and indicators.
In the daily bar chart of ULTA, below, we can see an uptrend the past twelve months, but we can also see some divergences. Prices are above the rising 50-day moving average line and the bullish 200-day line, but prices are extended above both of these indicators.
Sometimes being extended or overbought is a sign of strength, and other times extended prices can be vulnerable to downward corrections.
Trading volume from the December low has been slack and is not what chart watchers like to see in a bull move. Technicians like to see volume expand in a rally and really surge on a breakout. Volume does not expand from the December low and volume does not surge all that much on the break out to new highs.
The daily On-Balance-Volume (OBV) line is still below the November high, even though prices are at new highs. This is a bearish divergence.
The Moving Average Convergence Divergence (MACD) oscillator is turning higher to a fresh buy signal, but it is not hitting a new extreme high.
This difference between the MACD oscillator and prices is also a divergence.
In the weekly bar chart of ULTA, below, we can see some mixed signals.
Prices are at a new high and above the rising 40-week moving average line, but volume has not expanded and the weekly OBV line has yet to make a confirming new high of its own.
The weekly MACD oscillator is in a bullish configuration, but also not at a new high.
In the Point and Figure chart of ULTA, below, we do not see volume and we do not see gaps.
What we do see is that a $296 price target was reached and exceeded.
Bottom-line strategy: With prices extended above the popular moving averages and the fact that volume does not confirm these gains, I have to now take a more cautious approach to shares of ULTA.
