Shares of Ralph Lauren (RL) are surging on Wednesday. The stock is up around 10%, putting at the top of the S&P 500 gainers list. This earnings-inspired ramp has driven the stock well past last month's peak.
Following this breakout, investors should take on a much more positive view of RL in the near term.
Two weeks after the Brexit low, Ralph Lauren returned to a very heavy resistance zone. The 17% rebound off the June 27 low ran out of steam as shares neared a declining 200-day moving average. Just below the 200-day is the March high near $100. After RL completely collapsed following its third-quarter earnings report back on Feb. 4, the stock's initial bounce peaked here. Since the March high, RL has been tracing out what is now shaping up as a major bottom. The top band of this six-month pattern will serve as key support as a new rally leg develops.
In the near term, RL investors should consider a pullback a low-risk buying opportunity. A dip back down to the $102-to-$101 area would retest the new support zone. On the upside, RL appears headed for a gap fill move. A rally up to the $110.50 level would fill the huge Feb. 4 breakdown gap. RL bulls should expect a pullback and consolidation before this major supply zone is cleared.
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