Rite Aid May Have More Upside Despite Huge Earnings Rally

Rite Aid rallies more than 20% after a top- and bottom-line beat. Despite the move, the stock could have more upside from here.
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As the stock market gyrates between positive and negative territory, Rite Aid  (RAD) - Get Report shares were firmly in the green. The stock was up about 20% Thursday following its quarterly results.

Rite Aid is hitting its highest price since late April, and at one point was up more than 26%.

The company delivered a top- and bottom-line beat for its fiscal first-quarter results, a difficult feat for retailers in the current environment.

A loss of 4 cents a share came in well ahead of estimates looking for a loss of 38 cents. Revenue grew 12.5% year over year to $6.03 billion, which came in more than $400 million ahead of consensus expectations.

After undergoing a reverse split just over a year ago, many had pegged Rite Aid as another retailer that would bite the dust. Perhaps it still will, but after a decent quarter, the stock is understandably rallying.

Trading Rite Aid Stock

Daily chart of Rite Aid stock.

Daily chart of Rite Aid stock.

I’m not trying to make the case that Rite Aid stock is a slam dunk buy from a fundamental perspective. In that light, both Walgreens  (WBA) - Get Report and CVS Health  (CVS) - Get Report appear more attractive.

CVS Health is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells CVS? Learn more now.

However, from a technical perspective, there’s no reason for bulls to ignore the price action.

Thursday’s action is impressive, as Rite Aid stock reclaims the 50-day and 20-day moving averages and clears downtrend resistance (blue line). This trend has been in play since the highs in December.

What bulls really want to see is a move over $15.84, which is the prior June high. While shares did eclipse this mark earlier in the session, a close above it would be preferred.

That would put the 50% retracement in play at $16.56, followed by the 61.8% retracement at $18.29 and stiff resistance near $18.50.

On the downside, a break back below downtrend resistance puts the 20-day and 50-day moving averages in play. That’s followed by $11.50 and the 200-day moving average.

Should bulls completely lose control of Rite Aid stock and fail to hold that last zone of support, it puts the March low near $9.25 on the table. 

For now though, watch the $16 to $16.50 area on the upside. Above potentially unlocks more upside.