by Serge Berger | February 11, 2014 8:01 am
Consumer discretionary stocks have become an interesting trading space during the past few days. over As of Monday’s close, the sector as a whole sits just about 5% off last week’s lows, and many individual stocks are flagging interesting patterns. Within this space, restaurant operator Red Robin Gourmet Burgers (RRGB) rallied sharply Monday on the back of an analyst upgrade.
Specifically, analysts Bryan Elliott and Brian Vaccaro from Raymond James upgraded RRGB stock from “outperform” to “strong buy” with a price target of $80. The analysts see Red Robin outperforming its competitors thanks to cost cutting and sales improvement programs that are being installed. Some of the company’s efforts include remodeling of restaurants and adding new menu items. Also on Monday, Bank of America upgraded RRGB stock.
As a result of the upgrades, RRGB jumped 13% Monday on a big spike in volume. RRGB stock, which usually averages closer to 250,000 of shares traded per day, saw volume of close to 700,000 shares on Monday.
Red Robin is scheduled to report earnings on Friday, Valentine’s Day, which will serve as the toggle date to see whether RRGB stock will get just as much love going forward.
Looking at the long-term chart of RRGB…
The sharp 2013 rally after breaking past a multiyear resistance point in February 2013 ultimately became too much too soon. Although RRGB stock managed to power right past its previous all-time high in the low $60s in 2005, this level was tested again amid the recent pullback. Thus, through a technical lens, the price action in this time frame remains constructive.
On the daily chart, RRGB stock’s big breakout rally from Monday has several technically and psychologically important implications.
First, note that the stock’s 200-day simple moving average (red), although marginally broken for a few days, did hold as a bigger-picture support reference area. Last Friday, RRGB already began to perk up, which in hindsight is a confirmation that Monday’s rally has staying power.
Further, Monday’s rally led RRGB stock to jump out of the big bull flag formation (black parallel lines), and also closed the stock back above its 50-day SMA (yellow).
In short, Monday’s rally was powerful and meaningful, and barring any nasty bearish reversal after Friday’s earnings report, RRGB stock is poised to move higher in coming months.
For my part, I am waiting for earnings to pass and will see if I can get a good entry level to buy the stock.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
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