Ulta Beauty Reports at Its 'Reversion to the Mean'

Ulta Beauty, Inc. (ULTA), the major retailer of prestige cosmetics, depends upon store foot traffic and is expanding its online offerings. The company is set to report quarterly results after the closing bell on Thursday, March 15.

The stock closed Wednesday, March 14, at $201.99, down 9.7% year to date and deep into correction territory at 19% below its Jan. 4 high of $249.30. The stock is up 5.4% from its 2018 low of $191.70 set on March 2.

Analysts expect Ulta to post earnings per share of $2.77 when the company reports results on March 15. Zacks Equity Research is upbeat on Ulta's earnings, citing positive same-store sales comparisons. The investment research firm noted that the cosmetics retailer has beaten earnings estimates for 16 consecutive quarters. However, this optimism is not shown on the daily and weekly charts. (See also: Top 4 Cosmetics Stocks of 2018.)

The daily chart for Ulta

Ulta has been below a "death cross" since Aug. 15, 2017, when the stock closed at $237.67. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving and indicates that lower prices lie ahead, and this has been the case for shares of Ulta. The stock began 2018 with two failed tests of its 200-day simple moving average on Jan. 4 and Jan. 19 as this average was declining from $249.32 to $247.02.

The horizontal lines are this week's value level of $190.67, which is the downside risk on a negative reaction to earnings. My annual risky level is up at $272.68, which appears unreachable given with the 50-day and 200-day simple moving averages at $217.91 and $232.71, respectively.

(If you're interested in learning to analyze charts using moving averages, check out Chapter 2 of the Technical Analysis course on the Investopedia Academy)

The weekly chart for Ulta

The weekly chart for Ulta is negative, with the stock below its five-week modified moving average of $209.85 but above its 200-week simple moving average of $195.72, or the "reversion to the mean," which has held for the past two weeks. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 21.93, down from 25.14 on March 9.

Given these charts and analysis, investors should buy Ulta stock at its 200-week simple moving average of $195.72 and add to positions at $190.67 if tested by the end of the week. Investors should sell on strength to the 50-day and 200-day simple moving averages at $217.91 and $232.71, respectively. These averages will be declining each day. (For more, check out: The Bull Market Turns Nine: A Look at the Top Performers.)