A slow economy and high unemployment has weighed on retail
companies this past year. Despite spurts of promising data, a
rally in retail stocks could not materialize after several
One of the more beaten down companies is
Abercrombie and Fitch
which lost half its market value from the October peak.
Despite looking stable in May (forming a
cup with handle
), weakness in the market and across the retail sector dragged
ANF to new lows near $29. The stock appears stable once again and
there are signs that a bottom may be near.
There are certainly plenty of headwinds to consider. Sales
guidance has been weak and there's been a shift by consumers to
low-end apparel. But recent reports from retailers have been
Ann Inc. (
reported strong quarterly results, and a U.S. retail sales report
beat expectations with a 0.8% advance in July.
The positive results from competitors and the better than
expected retail data spurred a rally that took ANF from $28.64 to
$36.25. Volume was also high during the rally, indicating
conviction among buyers.
The shares are rapidly approaching the $38 resistance level (blue
line). It will be interesting to see if the momentum gained over
the past week will be enough to break this area.
In the near term, I expect $38 to contain the buying pressure.
However, ANF took back the 50-day moving average (orange line)
during this latest rally. Stocks that are above the 50-day moving
average are often in bullish trends.
The shares will eventually break out past $38 so long as buyers
can protect the 50-day moving average. The target after such a
breakout is $45, or about an 18.5% advance.
Investors should consider taking half their position as ANF pulls
back to the 50-day moving average. The second half can be taken
as the shares break out past $38. Total gains on the trade should
be near 20%. ANF also pays a 2.2% cash dividend.