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This Housing Side Play Is Due For A Double-Digit Pop, Chart Says

Serge Berger

Home furnishings retailer Restoration Hardware Holdings (NYSE: RH) hasn't been publicly traded for long, but so far, the company has made the most of it. Since it went public on Nov. 2, 2012, the stock has rallied more than 200%.

For its initial public offering, the company sold 5.2 million shares at $24 apiece, which valued the deal at about $124 million.

Leading up to its IPO, the company saw double-digit revenue growth for 10 consecutive quarters, and over the past 12 months, top-line growth has continued. Many analysts have adjusted their price targets higher. Jefferies, for example, raised its price target from $68 to $88 in September. The company's next earnings announcement is scheduled for mid-December.

The fact that a company selling high-end home furnishings can flourish in a slowly recovering economy is a good sign not only for Restoration Hardware, but also for the housing market.

While certainly not sporting as spectacular gains as RH, other home furnishings retailers have also rallied. Bed Bath & Beyond (Nasdaq: BBBY) and Williams-Sonoma (NYSE: WSM) have seen their share prices rise about 25% to 30% in the past year, reflecting improvements in the housing market.   

Restoration Hardware caught the attention of Steve Cohen, Paul Tudor Jones and other hedge fund billionaires. Having big-money guys like these supporting the stock is another positive, but traders will need to watch the company's filings with the Securities and Exchange Commission closely for changes in ownerships.

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On the charts, RH looks great from a technical perspective. On the weekly chart looking back to its IPO, the breakout in May is at the core of my bullish take on the stock.

Following the breakout, RH rallied more than 90% into early July. From there, and in a technically constructive fashion, it settled into a consolidation phase.

In early October, investors got a case of the jitters when an SEC filing showed that one of the insiders holding the stock, private equity firm Catterton Partners, filed to sell nearly 4 million shares. A few days later, however, the stock regained its footing and began to move higher. Digesting news in a constructive manner is a sign of a healthy stock.

Moving on to the daily chart below, RH continues to display tight patterns that offer traders defined breakout price levels and stop-loss areas.

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After leaving behind a bullish hammer candlestick on Oct. 9, which coincided with a diagonal downsloping support line, RH has been on a tear.

The stock overcame its 50- and 100-day moving averages, and after a couple of weeks of further consolidation, it broke out again Nov. 9. The charts point to continued upside.

Action to Take -->

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-- Buy RH at the market price

-- Set stop-loss at $68.80

-- Set initial price target at $82 for a potential 11% gain in four to eight weeks

This article was originally published at ProfitableTrading.com:
Chart Says This 200% Gainer Could Stage a Big Rally in the Next 2 Months

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