Harvey Norman shares rose 2.3% yesterday on the back of a strong result from JB Hi-Fi which grew comparable store sales 5.4% while at the same time expanding its gross margin by 3 basis points.
JB Hi-Fi is benefitting from the demise of Dick Smith and no doubt Harvey Norman is as well. This looks set to continue for a while. One of the most encouraging aspects of the JBH report is that the New Year has got off to a cracking start. Comparable store sales were up 9.5% for the month of July.
The issue for Harvey Norman shareholders now becomes whether or not the share price is already fully reflecting a strong result, setting up for a buy the rumour, sell the fact outcome. Not only was the stock up 2.3% yesterday, it has rallied 21% from its low in early July.
Yesterday the share price peaked neatly at a harmonic AB=CD level where the latest swing up exactly matches the one before it. If the stock begins to falter around this level, it could be a warning sign form a chart point of view.
If the rally does continue then $5.48 becomes a potential chart objective. Here the CD swing will be a 127% Fibonacci extension of the AB swing.