Ralph Lauren Corp (NYSE:RL) shares have been hit hard in 2015 along with so many other retailers like it. While the stock is not out of the woods through a six- to 12-month lens, sentiment has arguably gotten too bad on the industry in the near-term. Meanwhile, RL stock has reached a technical confluence support area that favors higher prices in coming weeks.
When Ralph Lauren reported its fiscal second-quarter results on Nov. 5, the better-than-expected operating margin of 13.5% coupled with its outlook for its fiscal 2016 led investors to push the stock to the tune of 15%.
While the rally didn’t last very long and has since retraced, the price action did put RL stock into a more constructive posture — one that active investors could look to play from the long side.
Before looking at the post-earnings rally more closely, let’s start by getting a feel for the bigger picture of Ralph Lauren stock. After a strong rally out of the 2009 financial crisis lows, RL began to slow its upward trajectory in spring 2013. While the stock had several more rally attempts that successfully pushed it to marginally higher highs, in the bigger sense, Ralph Lauren has been in consolidation mode since 2012.
RL Stock Charts
The 2015 selloff, which so far looks to have bottomed in late September along with the broader stock indices, did so right at the 50% retracement line of the entire rally from 2009 into the ultimate highs in 2013.
From this angle, bulls will also point to divergence between price and momentum, where momentum indicators such as the MACD bottomed in the first half of 2015 while the price did not bottom until September. Momentum indicators usually win out in these relationships, and thus supports the thesis that a bounce from here into year-end or early 2016 is well possible.
On the daily chart we see that RL stock in late September marginally undercut its August lows, which served as sort of a breakdown fake-out move. This was followed by an up-gap and rally on Sept. 30, a higher low in early November and finally the big post-earnings rally on Nov. 5.
It is important to note that the selling in the middle part of November was likely more due to broader retailer concerns which thus also dragged RL stock lower. In other words, from a company-specific standpoint, nothing has likely changed since the early November earnings report.
Note, however, that while more than 60% of the Nov. 5 rally has retraced, RL stock did find support at its blue 100-day moving average, which the stock pushed above on Nov. 5. After a few weak intraday tries to push below this moving average and holding above it on a daily closing basis, on Thursday the stock popped nearly 3% and may now be back on its upward trajectory.
Active investors and traders could use Thursday’s close to buy RL stock for an initial rally into the $130-$135 area, while any major bearish reversal from here should be a warning sign to get out of the trade until the next bullish reversal.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
