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Ulta Shares Fade From Earnings Pop - Here's How to Trade Them

Ulta beat on earnings but missed on revenue. The charts suggest how to trade the stock from here.

Ulta Beauty  (ULTA) - Get Ulta Beauty Inc Report investors' reaction to its quarterly results has been mixed.

On the one hand, the shares at this writing are up 6% after the company beat on earnings but missed revenue estimates

On the other hand, the shares of the Bollingbrook, Ill., company are well off the session highs. They were up close to 15% at one point.

It's a mixed reaction to a mixed quarter. That’s a fair way to put it - although it doesn’t make it easy for investors.

While some retailers are shooting the lights out — like Target  (TGT) - Get Target Corporation Report and Dick’s Sporting Goods  (DKS) - Get Dick's Sporting Goods, Inc. Report — others are struggling.

For Ulta, revenue tumbled 26% year-over-year in the quarter, which makes sense. Who needed makeup when the whole economy was shutting down? 

Then again, the comparable-store sales decline of more than 26% bettered the consensus estimate calling for a 30.8% drop.

Again, not great but better than expected. As investors try to digest the numbers, let’s see how the charts can lend a hand.

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Trading Ulta Stock

Daily chart of Ulta stock

Daily chart of Ulta stock

A glance at the charts shows us a few things — some good, some bad.

I really like the way support near $190 continued to hold for several months, before Ulta stock rallied to the 200-day moving average and pulled back in August. 

On that pullback, though, the shares put in a higher low, finding support at the 20-day and 50-day moving averages.

With Ulta’s post-earnings rally, the shares are clearing the 200-day moving average and downtrend resistance (blue line). 

Although it’s disappointing to see such a sharp decline from the session highs, it’s constructive to see it above these levels of resistance.

Now, the key is for Ulta stock to hold up above these marks. If it can, it puts the $255-to-$260 area back in play. This zone was resistance from June, and so far it looks as if it will mark the high for August, too, with the shares hitting $256.60 on Friday morning.

On the downside, let’s say the 200-day moving average fails as support. That will put the 50-day moving back in play, followed by the August 20 low at $203.90 (the higher low I referenced earlier).

Below that mark and range support near $190 will be back on the table. The charts are pretty sloppy, but the key levels are well defined.