Rite Aid Struggles With Key Area Before Earnings - Here’s the Trade

Rite Aid has posted a strong recovery from this month's lows. However, earnings will drive the short-term move. Let's look at the charts.
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Rite Aid  (RAD) - Get Report will soon be in focus, with the company reporting earnings on Thursday before the stock market opens.

The stock has been an interesting one. While shares did waver with quite a bit of volatility in March, they didn’t plunge like the rest of the market.

However, while many other stocks have enjoyed nice gains over the past six months, Rite Aid has not. Shares are actually down 23% over that stretch. That’s despite the stock rallying over 20% in the past eight trading sessions.

Given the performance of its peers, perhaps Rite Aid’s performance isn’t all that surprising.

Walgreens  (WBA) - Get Report stock has fallen a similar 23.8% over the past six months, as both stocks lag behind CVS Health  (CVS) - Get Report, which is up 5.7%. Can earnings turn it around for Rite Aid?

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Trading Rite Aid Stock

Daily chart of Rite Aid stock.

Daily chart of Rite Aid stock.

As you can see, the stock has enjoyed a powerful rebound from the September lows. In doing so, Rite Aid reclaimed the 20-day moving average.

However, it’s now struggling with a key area with earnings on deck. So far, the 200-day and 50-day moving averages are acting as resistance. $14.20 was a key bounce level in June and July before failing in August. It too is grouped in this key area. 

With Wednesday’s resistance and the big rally from the lows, we now have a roadmap to follow.

On a bearish reaction, Rite Aid stock will solidify the 200-day and 50-day moving averages as current resistance. Beyond that, it will put the 20-day moving average on watch for a potential support zone.

While this measure is about 7% away from current levels, keep in mind this name is volatile. It wouldn’t be surprising to see shares trade below this mark if investors don’t like the quarter.

Below the 20-day moving average and $11.50 to $12 becomes the critical must-hold zone.

On a bullish reaction, I want to see a close above $14.50. That will put Rite Aid stock above several key levels and will hopefully flip the 200-day moving average back to support.

If shares can clear $15 — near the 50% retracement from the July high to the September low — it could open up a larger run and potentially have investors thinking of a longer-term price target closer to the $18 to $19 range, which has been resistance