Is Rite Aid's Fade From Earnings Rally a Buying Opportunity?

Rite Aid rallied more than 30% on Thursday as investors reacted to earnings. It has since faded from those highs. Is it a buy?
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Rite Aid  (RAD) - Get Report shares started off hot on the day but fizzled a bit Thursday afternoon.

While still up 12.5% on the day, the stock was up as much as 31.2% on Thursday after Rite Aid reported better-than-expected earnings.

So one can imagine why - despite still sporting a big gain on the day - investors are a bit disappointed in the retailer.

Revenue rose 12% year over year to $6.12 billion, while adjusted earnings came in at 40 cents a share. Both figures were well ahead of expectations, which called for sales of $5.84 billion and earnings of just 2 cents a share.

Coupled with better-than-expected guidance for fiscal 2021 and it’s no surprise why shares popped on Thursday morning.

Add in the stock’s short float of roughly 24.5% and it seems like this rally should have been more sustainable. Let’s look at the charts to see if it is.

Trading Rite Aid

Weekly chart of Rite Aid stock.

Weekly chart of Rite Aid stock.

As the chart highlights above, it’s no secret that it’s been a rough ride for long-term investors. Many are likely surprised Rite Aid is still in business.

But ever since December 2019, this stock has had life. In fact, of the recent move over the past year, that rally marks the high, at $23.88.

Rite Aid has been struggling with the $19.33 area, which has proved to be key over the last 15 months or so. It last acted as support in October 2018, before giving way in December 2018 and becoming resistance in early 2019.

Since the stock’s big rally a year ago, this area has consistently been resistance. Both last week and this week, Rite Aid stock has failed to close over this mark on a weekly basis despite vaulting over it in back-to-back weeks. 

For bulls, this is proving to be a make-or-break mark. If the stock can close above this level and eventually take out this week’s high at $22.45, it puts that December 2019 high in play near $24.

I would love to see the stock clear this range, giving bulls a nice breakout toward the $27 area. There it finds a potential resistance point, as well as the declining 200-week moving average.

Should Rite Aid fail to reclaim the $19.33 area, a pullback may be in order.

If that’s the case, I want to see the 10-week and 50-week moving averages buoy the stock, although they are admittedly a long ways off from current levels. This week’s low at $17.07 can be active traders’ risk point.