As earnings season kicks into full gear, we’re sure to see plenty of juicy price action and potential trade setups to look at in this column over the coming weeks.
The stock that caught my attention after Wednesday’s close was Ruby Tuesday (RT), which plunged on notably worse-than-expected fiscal first-quarter results. Top-line revenue of $289.7 million fell short of the estimated $298.59 million, and earnings per share posted at a loss of $0.36, far below analyst expectations of a loss of $0.05.
This poor result, coupled with with yesterday’s collapse in the stock of Yum Brands (YUM) on the back of its earnings (discussed here), makes me wonder what’s in store for the rest of the casual dining chain stocks.
To be fair, the writing has already been on the wall for Ruby Tuesday for some time, at least for those with an eye on the charts. Although the stock remains rangebound in the bigger picture, it is lower by 4% year-to-date and the trading has been choppy. After topping in January 2011 with a dramatic overshooting, the stock had finally sucked in the last of buyers and quickly shifted gears to the downside. The ride down to a reaction low in July 2012 wasn’t pretty, but in the bigger picture RT stock settled into a tradeable range in the autumn of 2011. This trading range remains the basis for my technical analysis on the stock in the medium-term.
The daily chart of Ruby Tuesday shows that it has spent the past two and a half months in an even more narrow trading range, and one that doesn’t take too much imagination to classify as a bear flag pattern. This pattern, as its name implies, tends to resolve to the downside — and assuming last night’s initial reaction to the company’s earnings is at least halfway accurate, the stock should be breaking to the downside of this pattern this morning.
While it will be important to see how the stock looks on a daily closing basis at the end of the day today, barring any major intraday bullish reversal the stock now looks to be headed toward the $6 mark.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.