Using the Technical Opportunity Screener from Profit Scanner, we’ve identified a chart pattern called the “continuation diamond” on Rite Aid Corporation (RAD).
However, it is not the continuation diamond that most caught our attention. After all, sometimes the human eye notices things that computer-based algorithms don’t always see, because they haven’t been programmed to look for them.
As we analyzed the stock, we noticed a strong up-trending channel forming on the stock from mid-December until now. RAD recently experienced a strong support bounce off of the up-trending support level and has recently climbed above the resistance level established in mid-February. This tells us the stock has a great opportunity to continue climbing until it reaches its next resistance level.
CVS Health Corp (CVS) brought attention back to the drug store and pharmacy business on May 21, when it announced that it was buying Omnicare, Inc. (OCR) — a pharmacy-services provider — for $10.4 billion. This move is quite similar to Rite Aid’s $2 billion purchase of EnvisionRX in February (the reason for the gap higher and the resistance level that was set in February).
It seems the entire industry is consolidating and looking for opportunities to gain market share. This level of competition and spending bodes well for Rite Aid stock, as investors will likely be much more willing to pay a premium for stocks in this industry group.
This lines up well with the bullish signals we are seeing on RAD’s stock chart. We expect the shares to climb back up toward their recent highs around $9 in the short term and recommend taking advantage of this with a bullish options play.
‘Buy to open’ the RAD July 9 Calls (RAD150717C00009000) for a maximum price of $0.45.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.
You can learn more about identifying price patterns — like a bearish head and shoulders top — and using them to project how far you think a stock is going to move in their Advanced Technical Analysis Program.
