ChartWatch: A Great Buying Opportunity

Retail is a trendy business and discount chain Ross Stores (NASDAQ: ROST) continues to trend the right way despite a tough corporate climate.

The shares of the retailer remain seemingly impervious to sluggish economic growth and high unemployment. In fact, ROST appears to perform better when the economy is at its worst. But that’s not unusual for discount retailers, which cater to penny-pinching consumers.

The company’s earnings have steadily risen over the years at a comfortable pace despite the gradual slowing of the economy. Analysts expect EPS growth to continue in the future, rising 18% this year and 11% in 2014. And unlike many companies, analysts have upwardly revised their earnings estimates for ROST in recent weeks.

Moreover, the average price target given by analysts is $73, which is a healthy 20% above the current share price. Though earnings growth and attractive price targets are compelling reasons to buy the shares on a valuation basis, ROST’s chart provides the best reason.

This chart shows the price of ROST shares along with an important moving average to monitor.

The shares recently touched the ascending 200-day moving average (black line), which is something that’s happened only three times since 2010 (blue arrows). After each of those pullbacks, the stock staged an impressive rally.

In 2010, the shares blasted 38% higher in five months. The stock touched the 200-day moving average a second time in 2010. Then it proceeded to rally 70% in a 9-month span. Finally, the shares went on a 14-month rally (beginning in 2011) that took the stock 108% higher.

The 200-day moving average has been a reliable launching point for ROST in the past. And I expect this moving average to support the shares again.

Though the 200-day moving average handed investors great opportunities to buy the stock in the past, the 50-day moving average (orange line) also played an important role in rallies. This line supported the stock during each of its three advances. Such support is common during bullish trends.

In addition, the 50-day moving average has rarely been in a decline, indicating the shares never moved lower for an extended period. Moreover, the moving average always stayed above the previous swing low price during prolonged rallies, indicating there was strong momentum behind the price advance.

All this goes to say that now is a great time to buy ROST. And I would consider selling the shares only if the 50-day moving average breaks beneath the current swing low price of $60. Such a break would indicate a loss of positive momentum.

Equities mentioned in this article: ROST

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