Rite-Aid (NYSE:RAD) stock has quickly become attractive for momentum traders.
Last year’s resurrection at the midnight hour put RAD stock back on the map. It infused it with strength, a fresh uptrend, and new support and resistance zones to trade around. Today we’ll highlight why a breakout is looming and where you should buy it.
RAD Stock Charts
The long view reveals a company that is a shell of its former self. Last year saw a 1-for-20 reverse split that rescued Rite Aid from its seemingly inevitable rendezvous with zero.
The string of quarterly losses that preceded it is all you need to know about why its demise was so relentless. From 2017 onward, Rite Aid registered negative earnings per share almost every single quarter.
A surprising quarterly profit sparked December’s rise from the grave. It is no coincidence that its rebound corresponded with a turn in the company’s underlying fundamentals. Whether or not it was a one-off or the beginning of a positive earnings trend remains to be seen. So far, however, the chart has held up well and is flashing the most constructive price action than we’ve seen in years.
Better yet, Rite Aid has held up very well in the face of last week’s market crash. It retreated for a few days, but buyers emerged at the 50-day moving average to avoid a breakdown and keep the integrity of the uptrend intact. Momentum also remained bullish, as confirmed by the RSI. It only briefly went below the 50 level before pushing quickly back into bullish territory.
Perhaps most importantly, volume during the dip was low. The absence of any distribution shows institutions were sticking with the stock and not abandoning positions en masse. Compared to the widespread panic and selling frenzy elsewhere, the mild bout of profit-taking in RAD stock is about as healthy (and thus bullish) as it gets.
Cup-and-Handle Formation
Monday’s rally jammed Rite Aid shares back to overhead resistance near $16, completing what could be considered a handle to the Jan-Feb cup. This “bottoming out” has allowed the stock to fully digest the profit-taking that occurred after December’s parabolic ascent. We now have a proper base to build the next advance from.
Tuesday’s 8% rip shows the breakout attempt is already upon us. After closing north of $16, a run toward $20 in the coming weeks could be in the cards if the broader market can avoid another crash.
RAD stock is cheap enough to buy shares outright. There’s no need to play with options, particularly given the volatile market backdrop. Bid-ask spreads have widened, making getting fair fills challenging.
A break below Monday’s low is a logical stop loss point. Until then, it’s game-on for bullish Rite Aid trades.
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!
