Ruths Chris (RUTH) Sizzles Through Resistance

Posted by barkand on January 13, 2012 under Classic chart patterns, Point and figure charts, Support / Resistance | Be the First to Comment

Today we are looking at Ruths Chris Steak Houses (RUTH), and not just because we are hungry. And today you get two charts for the price of one! First will be a candlestick chart and then we will look at a point-and-figure chart.

RUTH broke out of an ascending triangle yesterday on heavy volume. A strong resistance area had formed the upper line of the triangle near $5.50. It began last summer with a congestion area in the mid-$5 region and had been threatened unsuccessfully several times since then. The lower line, providing support, finds its roots in the lows formed in October. These two lines would soon be meeting and the typical result is for prices to push through the resistance area.

Next, we will look at the same data in a point-and-figure chart. Specifically, we are using a 10 cent box size with a 3 box reversal. There are a couple reasons for showing this chart: (1) it cleans up alot of the noise on the candlestick chart seen above and (2) it provides a classic textbook structure rarely seen on 3-box reversal charts.

On the chart below, we can clearly see that RUTH had descended into a trading range from $4.40 to $5.40. If you focus on that congestion area you can see the symmetry in the price pattern. You might notice also that in the middle of this congestion area prices broke down badly and then completely reversed. This was a first clue that prices were bottoming.

In December, RUTH finally poked her head above that congestion zone. Prices did not make much progress immediately, but it nevertheless generated a price target of $6.80 according to P&F rules.  Yesterday’s break above $5.60 (actually closing at $5.95) made us more confident that RUTH shares would start to sizzle.