Shares of home furnishing retailer Restoration Hardware Holdings Inc (RH) rallied strongly on Thursday after the company reported better-than-expected third-quarter earnings. Thursday’s price action also was of bullish significance technically for RH stock, as shares continued their ascent out of structurally sound formations — and that should support even higher prices.
Restoration Hardware reported Q3 earnings of 49 cents per share, up 53% year-over-year and a penny better than expectations. Meanwhile, revenues grew 22% to $484.68 million to clear a $481.98 million analyst bar. Lastly, sales guidance for fiscal 2014 was slightly nudged higher from a range of $1.85 billion to $1.87 billion to a new range of $1.86 billion to $1.87 billion.
In my Nov. 18 column, I discussed a long-side trade in RH stock as it increasingly looked ripe to spring higher out of a tight technical pattern that was supported by positive growth momentum. With Thursday’s 9.06% rally, the stock has reached my near-term price target that I laid out in November; however, through a multimonth lens, Restoration Hardware still appears to have more upside.
RH Stock Charts
Looking at the weekly chart stretching back to the October 2012 IPO, we can see that while the ascent in RH stock hasn’t been very spectacular in terms of it slope, the going has been orderly as consolidation phases led to clean breakout moves. From this angle, the bullish posture is based around the breakout rally in from June, which saw a textbook retest in October before rallying again. Thanks to Thursday’s rally, RH stock now has reached (and marginally surpassed) its June/July highs, and from a momentum perspective also looks ripe to continue higher.
From the perspective of the daily charts, the aforementioned crucial retest of previous resistance — and thus an important bounce off support (blue bubble) — took place along with the broader market lows on Oct. 15 when the stock also bumped into its uptrending 200-day simple moving average (red line). RH stock then rallied back up to a confluence resistance area made up of diagonal resistance from the June highs and more near-term horizontal resistance (red dotted line).
In the second half of November, the stock broke past this area of resistance but then quickly settled into a consolidation phase, which ultimately resolved higher Thursday after the earnings report.
From here, RH stock could be overbought in the immediate term and is in need of digesting Thursday’s rally for a while, but ultimately the wind still looks to be at the back of the stock, which should support a move into the $105-$110 area. Active traders and investors could look to buy RH stock on a daily close above $96 for a continuation play.
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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.
