Rite Aid’s (NYSE:RAD) stock chart has “hot mess” written all over it. We’re talking big-league, size 64 font, bold letters. But I suspect some good old-fashioned technical analysis will help bring order to the chaos, or at least as much order as possible for a struggling company that underwent a 1 for 20 reverse split just to keep the dream alive.
Today we’ll break down RAD stock to see if it’s worth trading or best left alone.
RAD Stock Volatility
We begin with a look through the volatility lens. When newcomers think of Rite Aid, they likely associate it with companies such as Walgreens Boots Alliance (NYSE:WBA) and CVS Health (NYSE:CVS). And that, in turn, might lead to thoughts of sleepy, low-beta sectors like consumer staples.
As logical as that train of thought may be, don’t follow it. The behavior of RAD stock is about as far as you can get from a slow creeper. Mom and pop investors seeking safety should pass on Rite Aid. But if you’re a volatility junkie in search of a fix, well, this could become your drug of choice.
Its beta is at 1.95 right now, but that doesn’t fully capture the insanity of December’s awakening. My preferred metric is historical volatility with a 20-trading-day lookback period. That measure rocketed from 36% to 191% during the post-earnings moonshot last month. It has since settled down to a mere 100%, but remains ten times higher than the same volatility reading for the S&P 500.
Movement? Rite Aid has it in spades.
The Weekly Chart for RAD
The weekly chart reveals the stock traveled round-trip from $20 to $189 and back down again over the course of the past decade, but don’t let the price scale fool you. Last April, after dithering beneath $1 for a spell, Rite Aid underwent a 1 for 20 reverse split, instantly propelling its stock price from around 50 cents to $10. Such is the magical math of splits.
One bright side to the levitating power of reverse splits is that they make penny stocks interesting to trade again. Many traders that cast RAD stock aside after seeing it fall to the single digits now have it back on the menu. It also opens the door to options trading if the price really gets moving again. Derivatives become unnecessary when stock prices fall too far. A single-digit stock effectively is an option from a cost perspective.
Rite Aid’s Daily Chart
If I were writing this article six months ago, I would be lamenting the nasty downtrend in RAD and the inability of any rally to stick. But December’s earnings report was a game-changer, delivering a 300% price jump in just over a week. The volume explosion was the obvious signal that buyers were swarming.
I have mixed feelings about this boom, in large part because of the dramatic giveback seen since. It makes me wonder if the rip was a one-off, rather than the beginning of a longer-lasting uptrend. Turning to the daily chart reveals greater detail about which price levels matter.
The Bottom Line on RAD Stock
If you’re a bull, I suggest waiting for a break above resistance at $14 before entertaining any kind of trade. Alternatively, a breach of support near $11 would bring a potential gap fill into play, creating a tempting setup for bears. Those are the best two setups I see here.
Bottom line: Given the plethora of better trending stocks elsewhere, I see little reason for forcing trades in RAD right here.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!