But recently, Ulta Beauty, Inc. (ULTA - Get Rating) Beauty’s rally is starting to show wear and tear. The beauty store chain, which had previously seen a boost from its sale of Kylie Jenner cosmetics, has turned flat for the quarter and is the weakest performer of the three in the past month.
Todd Gordon, founder of TradingAnalysis.com, says it will start to shine again in the next month.
“It’s been in a nice bit of consolidation here,” Gordon said Thursday on CNBC’s “Trading Nation. ”
“The stock looks like it could break through some resistance here,” he added. “You can see we’ve been on the approach up to that breakout point about $350.”
Ulta bumped up against $350 on Thursday, though closed just below it. The stock had briefly moved above that level in late May, but failed to hold there. It has not traded firmly above that level since April, a stretch that marked its all-time peak.
“What you’ll see here is we’ve come very close to that breakout point, have pulled back and we’re now starting to mount another attack on that breakout zone,” said Gordon. “Let’s structure an options trade such that the reward would be larger than the risk, anticipating a breakout of that downtrend resistance.”
Gordon is buying the 350 call and selling the 365 call, an options bet that takes advantage of a move out of its resistance band. This spread is a prediction Ulta Beauty, Inc. (ULTA - Get Rating) can move as high as $365 by July 19 expiration, a 5% increase and a rally that would take it to record highs.
Ulta Beauty, Inc. (ULTA - Get Rating) shares were trading at $353.94 per share on Friday afternoon, up $4.13 (+1.18%). Year-to-date, Ulta Beauty, Inc. (ULTA - Get Rating) has gained 44.56%, versus a 16.37% rise in the benchmark S&P 500 index during the same period.
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