Restoration Hardware (RH) has recovered all the losses that occurred following the initial panic selling that gripped the markets due to Covid-19 in late February and March.
After forming a v-bottom—the cup part of the cup and handle strategy— the price has been consolidating near the prior high since the start of June.
The highest daily close during that consolidation period is $265.34. The highest intraday high is $269.21.
I am watching for a breakout of these levels. A breakout above $269.21, and especially a closing price above that, would indicate that an upside breakout is underway.
An entry near $270 with a stop loss below the most recent consolidation means a risk of about 6.5% on the trade. A target of about 23% above the entry, near $331, provided a 3.5: reward-to-risk.
The stock market is still strong, so I continue to take these opportunities as they arise.
This cup and handle pattern has been very successful recently, as the S&P 500 is forming a variation of it right now. That means lots of stocks have this type of pattern. The very strong stocks in the market formed this pattern a month or more ago.
Ballard Power Systems (BLDP) is another example of this pattern that worked out recently. Ring Central (RNG) had a much looser pattern compared to BLDP and RH. I was over-eager for trades (even though there is no lack of them) and jumped into that one. It continued to bounce around and I got out with a small loss. That is an example of a not so great cup and handle, and one that didn’t work out (I shouldn’t have been in it anyway…wait for the tight consolidation!).
By Cory Mitchell, CMT
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.