This Stock Continues to Act Well Through the Lens of Technical Analysis in Multiple Time Frames

December 27, 2016
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Shares of skin and hair care products company Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) are higher by nearly 40% year-to-date, with one week of trading left in 2016. While I don’t expect much meaningful price action to take place during the last week of 2016, ULTA stock does continue to act well through the lens of technical analysis in multiple time frames.

As a maker of cosmetics products and operator of beauty salons, Ulta Salon is a consumer discretionary company, which means its business is more heavily exposed to the rotations of the business cycle than a consumer staples company would be.

This may be important for ULTA stock in 2017 because if the U.S. economy is indeed moving into another expansion phase this coming year, then consumers should at the margin and by textbook definition, feel better about spending money, thus consumer discretionary stocks should benefit.

ULTA Stock Charts
Moving right to the charts of ULTA stock, we see that through a multi-year lens, the stock remains in a well-defined up-trend that has found support at its yellow 50-week and blue 100-week simple moving average in 2015 and 2016, while pausing along the way.

We also see that from a momentum perspective, ULTA stock exhausted itself in August of 2016 and from this angle then settled into a somewhat volatile sideways consolidation phase, which I marked on the chart with the blue box.

From a purely technical perspective, this has now also given the yellow 50-week moving average some time to catch up with price, which may eventually serve as a reference line of support again in 2017. Another way to look at this chart from this angle is to say that the longer ULTA stock remains consolidating in this sideways range, the better the odds that it ultimately resumes on the path to the upside.

In 2016, ULTA stock exhibited plenty of up and down-gaps following the company’s earnings reports. For the technical trader and active investor, this can help define areas of support, resistance and price attraction more clearly.

Looking at the daily chart, we see that the last meaningful up-gap took place in May 2016 following the earnings results, which acted as the last accelerator to push the stock toward its summer 2016 highs. This up-gap along with the red 200-day simple moving average has since also acted as support for the stock.

In early November following the U.S. election results, ULTA stock bounced off this technical support area and pushed back toward the upper end of the consolidation phase, which I marked on the daily chart with the two black parallels.

Although I don’t foresee any major price movement in this stock in the last week of 2016, if the stock can consistently overcome the $270-area in early 2017, then a logical next upside price target becomes the $300 area.

– Serge Berger

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Source: Investor Place



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