Looking for a trade on the short side? Try Ulta Salon (ULTA). (February 19, 2016)
I want to look at Ulta ( NASDAQ:ULTA ) today. I’ve liked this stock for a long time, but I’m starting to not like it now. You can see why, but I’m going to go ahead and point it out. This is the 200-day moving average right here. We got a quick sell-off back on August 24th. Everything was selling except the inverse ETFs, flash crash, and then another pullback to the 200 here. Each time this thing bounced; these are what I call a shot across the bow. Shots across the bow where the stock falls below the level where it’s really kind of not supposed to fall, but then it rebounds. And then later you look back at those technicals events like this, not that, like that, and even like that. And you say, “This looks like an early warning sign from the bears.” In other words, a shot across the bow of the bulls boat that something was wrong.
So by the time this thing knifes through the 200-day again, I’m looking at this as a stock that you don’t want to hold anymore (sorry for you “Ultarians”), but better days have come and gone. So we get a breakdown here and then a rebound and COULD NOT regain the 200-day moving average; could not regain it. That’s a problem. Now we’ve just hit a new low on Friday, and another one on Thursday, that we really had not seen since that August 24th crash. Look here at the volume, big selling volume on these two days. So this is the thing, it’s not in a great position to short right now just because of this zigzag. You want to actually short weak stocks, stocks that are breaking down, and you want to short them on strength. So here, you’d kind of like to see the stock rally a bit first, but look at the weekly chart. This is kind of a big deal, the way this stock has traded down.
This is what you can do: You take this last low here, prior to the breakdown, and then you take the high. So extend these down; look over to the left-hand side of the screen here, in the little inset box, 34.55, we’ll just say $35.00. That is the distance between the top and this last low here, right there, about $35.00. So then we take this low, where this thing was, now that it’s broken down, and we extend it down, $35.00. What do we get? About 116.00, I’m going to come up a little bit. We’re going to look at the August 24th low here and pick 120.00 as a price target. So from here on a percentage basis, it’s about another 20 percent drop. I’m not looking for that tomorrow, which since I’m doing this on Friday, that’s a pretty safe bet, tomorrow is Saturday. I’m not looking for it next week, maybe not even next month, though I do know this, the company reports earnings in early March, March 10th is what I’ve got on my calendar, so watch and see how the stock trades between now and then.
All bets could be off as far as my price target prior to earnings. But from a technical standpoint right here, right now this is a stock that you want to sell into strength. Hopefully, and I mean this, hopefully this stock will go into the toilet so far so fast that then prior to earnings we’ll look at this and it’s so oversold I’ll come back here in this venue and say, “You know what? You want to buy this stock prior to earnings. Because all the selling has already taken place. All the bad news has already been factored in, it’s time to buy.” Obviously I’m not looking at that now, I’m looking at a stock that you really want to be selling and then look to buy it back, or cover your short at lower prices.
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