Teen Retailers Ready to Run, Except Maybe One
- Posted by Greg Harmon
- on November 15th, 2011
Teen Retailer Abercrombie & Fitch, $ANF, reports earnings Wednesday morning before the market opens. It has been a wild stock coming into earnings with Historical Volatility over 70% and a chart that fell off of a cliff 2 weeks ago falling from 74 to 59 in one day. From the chart below is appears to be consolidating between 55 and 57.50, an area of previous support. This could turn into a basing or end up being a bear flag with more downside to 53 and then 48 and 45.50 below. The Relative Strength Index (RSI) bouncing along the 30 level suggests that it may be ready to turn
higher and the Moving Average Convergence Divergence (MACD) indicator is slowly improving but a long way from a positive cross. The at-the-money Straddle suggest a move of about 6.8% into Friday’s close or a range of 51.80-59.40, but it clearly has had much greater moves. Hard to tell if the volatility is fair, cheap or rich. How do you play earnings for a stock like this? It is easy if you have a directional bias or a strong view on the volatility. Without either the best play is to wait until earnings pass and then trade the reaction. Besides there are 3 other stocks in this space with good set ups that do not have the complication of earnings, Aeropostale, $ARO, American Eagle Outfitters, $AEO, and Zumiez, $ZUMZ. $ARO and $AEO both report on November 30th while $ZUMZ reports December 1st.
Aeopostale, $ARO, is in a bullflag consolidating near 17. With a RSI that is firmly bullish but working off a technically overbought level and a MACD that is near zero but looking to glance and go. It can be played long on a move over 17.70 or short on a move under 16.20
American Eagle Outfitters, $AEO
American Eagle Outfitters, $AEO, is in a similar position showing a bull flag in an uptrend , but with a RSI that is falling back and a MACD that has crossed negative. Strong uptrend but may be tiring. It can be played long over 13.80 or short on a move below 13.40.
Zumiez, $ZUMZ, has been consolidating after a move higher but now has support fr more upside from a MACD that is a bout to cross positive and a RSI that is rising again. Play it long on a move over 24.15 looking for at least a gap fill.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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