Rite Aid Corporation (RAD) is the third largest U.S. drugstore chain, serving communities primarily on the East Coast. Rite Aid has 4,621 locations in 31 states, and its shares were weak in 2017 as Walgreens Boots Alliance, Inc. (WBA) reduced the number of stores that it would purchase.

Rite Aid stock closed Tuesday at $2.13, down 74.2% since the end of 2016 but in bull market territory at 54.3% above its 52-week low of $1.38 set on Nov. 9. The stock set its 52-week intraday high of $8.77 on Jan. 13, 2017, and is in bear market territory since then, down 75.7%.

Rite Aid reports earnings after the closing bell on Wednesday, Jan. 3, and analysts expect the company to post a loss of 2 cents per share. A key result will be the impact of the recent sale of 1,932 stores to Walgreens Boots Alliance for $4.38 billion. Along with remodeled wellness centers and increased online sales, this could result in better-than-expected earnings. (See also: A Quick Look at Rite Aid's History.)

The daily chart for Rite Aid

Daily technical chart showing the performance of Rite Aid Corporation (RAD) stockCourtesy of MetaStock Xenith

Rite Aid stock has been below a "death cross" since Feb. 15, 2017, when it closed at $5.79. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving average and indicates that lower prices lie ahead. The stock has been within the $1 to $3 trading range since June 30 as an "option on survival." In other words, traders and investors should buy the stock with money they can afford to lose. (For more, see: The Top 5 Rite Aid Shareholders.)

The weekly chart for Rite Aid

Weekly technical chart showing the performance of Rite Aid Corporation (RAD) stockCourtesy of MetaStock Xenith

The weekly chart for Rite Aid has been positive since the week of Dec. 8, with the stock now above its five-week modified moving average of $1.93. The stock is well below its 200-week simple moving average at $6.39, which is also the "reversion to the mean," last tested during the week of Jan. 27, 2017, when the average was $6.68. The 12 x 3 x 3 weekly slow stochastic reading ended 2017 rising to 43.61, up from 34.96 on Dec. 22.     

Given these charts and analysis, I recommend buying Rite Aid versus my quarterly pivot of $2.09 and reducing holdings on strength to my annual risky level of $6.51. Note that, at the bottom left of the chart, the stock was a clear "option on survival" five years ago. (For additional reading, check out: Amazon Should Buy Rite Aid: Cowen.)

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