Shares of mid-cap health and wellness products retailer GNC Holdings Inc (NYSE:GNC) are acting better than the broader market as of late, and are showing promising signs in absolute terms. Active investors should eyeball GNC stock for quick profits given shares’ well-defined risk and reward.
When GNC reported its fourth-quarter results on Feb. 12, it beat analyst expectations on both the top and bottom lines, leading to a meaningful pop in GNC stock that laid the basis for what could soon be meaningful follow-through buying to the upside.
For risk management purposes, it is important to mention that GNC, Walgreens Boots Alliance Inc (NASDAQ:WBA) and other retailers were recently asked by the New York Attorney General to stop selling certain supplement products that apparently contained substances that weren’t on the label.
In other words, this impending situation is out there, and while I don’t expect it to turn into a bigger crisis for GNC, it should be monitored.
GNC Stock Charts
On the multiyear weekly chart, we see that GNC stock in 2014 corrected meaningfully after a sharp 2012-13 rally. But it’s important to note that the stock’s August lows coincided with its December 2012 lows (blue bubbles). The stock then began a steep rally into year’s end, but closed the year still well below its November 2013 highs.
On the daily chart, we see that GNC stock reacts well to its 100-day simple moving average (blue line), which it has bounced off twice (once in October and against last month) since pushing back above it last August.
This brings up an important lesson for all traders: Every stock has its own character and typically will respect some moving averages more than others. In other words, blindly using the same moving averages for all stocks is weak risk management, so please understand a stock’s characteristics before labeling a breakthrough or a bump into a specific moving average as noteworthy.
The nearly 12% post-earnings rally in GNC stock on Feb. 12 came on a big spike in volume and pushed the stock above its December 2014 highs. The stock then settled into a multiweek consolidation range, which is still taking place but has taken the shape of a so-called bull flag pattern, which as the name indicates has a tendency to release to the upside. Note that the the post-earnings pop came just a few days after GNC bumped into its 100-day moving average, which in essence reconfirmed this moving average as good support.
Active investors could now look to buy GNC stock on a push above $49.20, for a move toward $51.50, while respecting any bearish reversal as a sign that the stock would need more time to consolidate.
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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.
