Discount Retailer Ross Stores May Suffer Slump

Discount retailer Ross Stores, Inc. (ROST) reports earnings after the closing bell on Tuesday, March 6, with the stock above a "golden cross" since Nov. 3, when it closed at $63.48. The shares are trading at my quarterly pivot of $78.00 and just below my semiannual pivot of $78.79. They closed Monday, March 5, at $77.98, down 2.8% year to date and down 9% from a Jan. 29 high of $85.66. The stock is 5.4% above its Feb. 9 low of $74.00.

Analysts expect Ross Stores to report earnings per share of 93 cents. The stock had a positive reaction to its previous earnings report released on Nov. 16, gapping higher on Nov. 17. Investors could have captured this gain, as the stock had a "golden cross" on its daily chart on Nov. 3. Zacks Equity Research believes that Ross Stores is poised for another earnings beat. But the daily and weekly charts suggest that a bullish outlook may not be in the cards. (See also: The Four R's of Investing in Retail.)

The daily chart for Ross Stores

Daily technical chart showing the performance of Ross Stores, Inc. (ROST) stock

A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average, indicating that higher prices lie ahead. This was a positive setup when the retailer reported earnings on Nov. 16. The upside price gap is clearly shown on this chart. After the stock set its 2018 high of $85.66 on Jan. 29, the correction took Ross Stores to as low as $74.00 on Feb. 9. Since then, the stock has not been able to stay above its 50-day simple moving average of $80.43, and the horizontal lines have been magnets – these are my quarterly and semiannual pivots of $78.00 and $78.79, respectively.

The weekly chart for Ross Stores

Weekly technical chart showing the performance of Ross Stores, Inc. (ROST) stock

The weekly chart for Ross Stores is negative, with the stock below its five-week modified moving average of $78.96. The stock is well above its 200-week simple moving average of $55.88, which is the "reversion to the mean." The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 53.44 this week, down from 61.20 on March 2.

Given these charts and analysis, investors should buy Ross Stores shares on weakness to the 200-day simple moving average at $66.85 and rising every day, while I recommend reducing holdings on strength to my monthly and annual risky levels of $83.75 and $85.15, respectively.

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