RH (RH), also known as Restoration Hardware, is a retailer of home furnishing goods such as furniture, lighting and many products that allow homeowners to decorate their homes to their desired style.
The stock closed Monday at $102.39, up 233.5% year to date and solidly in bull market territory at 319.5% above its post-election low of $24.41 set on Feb. 7. The stock set its post-election high of $107.48 on Nov. 17, which is also its all-time intraday high, just above its November 2015 high of $106.49.
The stock has been on a volatile ride – from $106.49 down 77% to $24.41, then up 340% to $107.48. The daily and weekly charts below show how investors and traders captured portions of this volatility.
Analysts expect Restoration Hardware to post earnings per share between $1.03 and $1.04 when it reports results after the closing bell on Dec. 5. The upside since February was a result of positive surprises over the past three quarters in earnings releases on Feb. 23, June 1 and Sept. 6. Thus, the company's efforts to redesign its supply chain have been considered a success. (See also: RH Q2 Earnings Beat Estimates, Shares Gain on Strong View.)
The daily chart for RH
The daily chart for RH shows that the stock has been above a "golden cross" since April 4, when it closed at $47.04. A "golden cross" occurs when the 50-day simple moving average (SMA) rises above the 200-day SMA, indicating that higher prices lie ahead. Note that the 200-day SMA held as an additional buying opportunity on Aug. 29 at $44.47.
This buy signal remains in play today, but there is a potential negative looming. It's called an "island reversal." Note that the price gap higher on Nov. 16 at the upper right is being consolidated. If the stock opens and stays below $96.06 on Wednesday, an "island reversal" would be confirmed.
The weekly chart for RH
The weekly chart for RH is positive but overbought, with the stock above its five-week modified moving average of $92.38. RH stock has also been above its 200-week SMA at $66.29 since the week of Sept. 8, following its previous earnings report. The stock is thus above its "reversion to the mean." The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 87.43, solidly above the overbought threshold of 80.00.
Given these charts and analysis, my trading strategy is to buy weakness to my annual and semiannual value levels of $75.09 and $71.99, respectively, and to reduce holdings on strength to my weekly risky level of $107.58. My monthly pivot (or magnet) is $96.75. (For more, see: The New Restoration Hardware.)