Shares of RH (RH) - Get Report - formerly known as Restoration Hardware - were up big Thursday, closing higher by 15.8% at $109.91 after reporting better-than-expected earnings. But they are well off the session highs, north of $122. What gives?
This name is well known for volatility. RH stock went from $100 in late 2015 to $25 before mid-2016. Shares then went from $25 in early 2017 to north of $100 by the end of the year.
See what I mean?
That volatility continues to impact the stock, both in good and bad ways. While shares are up almost 20% on Thursday, they have fallen from $158 in March to $85 in May, a 46% haircut in three months.
Given the nature of the retail sector right now, many are hesitant to trust RH right now. That's even with a top- and bottom-line earnings beat. Let's look at the charts to see if it's a name investors can bet on here.
Trading RH Stock on Earnings
Because of the better-than-expected first-quarter report and management's full-year outlook that came in ahead of consensus expectations for both earnings and revenue, investors want to buy this stock. But it's not holding its gains and that's causing some concern on Wall Street.
I would really like to see RH stock hold its 61.8% retracement for the one-year range, currently at $114.82. If it can do that, it increases the odds that it can rally back toward the 200-day moving average at $122.29 and the 50% retracement up at $124.30. So far, this area has acted as resistance. Above that and RH stock can fill the gap up toward $130.
Should RH stock fail to reclaim its 61.8% retracement, I need to see it hold the $100 to $105 area. This area is a significant support/resistance zone and it's also where the 50-day moving average is. Below $100 and RH may fill its post-earnings gap down to ~$95.
It's good to see RH stock hurdle its brutal downtrend line (blue line) and gap up over the 50-day moving average on strong earnings. Now it has to prove to investors that it's not just a one-day fluke and that the stock can climb meaningfully higher from here.
Keep an eye on ~$115. Below it could push RH down to $105, while above it could drive RH stock back to the 200-day moving average.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.