California-based staffing firm Robert Half International (RHI) put out a Street-beating second-quarter earnings report Tuesday that led RHI stock to jump more than 7% Wednesday — a move that looks to be too much, too soon on both the near- and longer-term charts.
Now, active investors and traders might find better opportunities on the short side of the stock in coming weeks.
Specifically, Robert Half’s Q2 earnings came to 55 cents per share, up 20% year-over-year and 3 cents better than Wall Street analysts’ expectations. Meanwhile, RHI reported sales that grew 9% to $1.16 billion to just edge out estimates for $1.14 billion.
Robert Half also had positive things to say in terms of outlook — it’s now looking for third-quarter EPS in a range of 55 cents to 60 cents, which easily meets the analyst consensus of 56 cents. Revenues are expected in a range of $1.18 billion to $1.23 billion, ahead of estimates for $1.17 billion.
The latter matter likely was what fired the stock higher in Wednesday’s trading, but considering the steepness of the slopes on the charts, it begs the question — was this the last hurrah for RHI stock, if only for a while?
When I synch this positive tone of news flow with what I’m seeing on the charts, I can’t help but raise at least a near-term red flag on Robert Half’s stock.
RHI Stock Charts
Looking at the multiyear weekly chart, Robert Half stock has seen a sharp rally off the 2011 lows, much of which has taken place in a steep (and steepening) wedging pattern. The pattern obviously broke to the upside over the past couple of months, but this type of parabolic move rarely lasts — here, it looks to be prone for a mean-reversion move sooner rather than later.
Momentum oscillators are getting exhausted, too, and in fact many of them are flashing negative divergences from price (i.e., making lower highs while price is still charging ahead).
Over on the daily chart, the steep move since May is displayed in even better context. After Wednesday’s rally, RHI stock now sits 18% above its 200-day moving average (red line), which in a historical context is extended. Wednesday’s move also extended the stock above its eight-day moving average (blue).
Active investors and traders would be wise to watch RHI stock closely in coming days for any bearish reversals, which could then provide a good spot to either short the stock or play for a mean-reversion move back toward the mid- to high $40s via the options market.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.