Red Hat opened today's session with a powerful earnings inspired breakout gap that lifted shares to new multiyear highs. The stock has faded a bit from its early 7% ramp but is headed for its best gain of the year with the help of extremely heavy volume. This impressive move has set RHT up well for more upside.
Back in late December, RHT bottomed shortly after its earnings inspired collapse on Dec. 22. The stock began a fresh rally in January and by late last month RHT was retesting major resistance after surging nearly 25% off the January low. It began to stall as it reached the $83.00 area, the lower band of a heavy resistance marked by the 2015 and 2016 highs. The stock has been tracing out an orderly consolidation pattern since last month's high, but today's news-inspired breakout has ended this sideways action with a fresh rally leg.
In the near term, RHT investors should view the stock as a buy on weakness. There are now layers of support place between $85.00 and $83.00. A dip down to this zone would offer patient bulls a very low risk entry opportunity. On the downside, a close back below $81.00 would indicate today's move has failed.