Sports apparel and accessories company Under Armour (UA) continues to reward trend-followers as well as quick traders.
Those leaning against the stock had to be happy with quick trades and exercise iron discipline in recent years as the bulls keep pushing higher. Such is often the case for trend-follower stocks, and sticking with these trends can be the most difficult thing to do, psychologically speaking, for investors and traders alike.
Despite an already steep year-to-date rally of roughly 60%, UA continues to act well technically as it routinely consolidates its breakouts to new highs. Because these are the signs of a healthy stock, it’s difficult — if not somewhat idiotic — to lean to the short side of UA in the near-term. At least not until clear distribution signs are in place.
On the chart below, notice the strong breakouts in May and again in late July.
Under Armour stock continues to churn and burn higher regardless of any weakness in the broader market, as trend-followers look for stocks to plow money into. Facebook (FB), which I discussed here two weeks ago, finds itself in a similar spot following its major earnings breakout in July.
After its most recent breakout past resistance on Thursday, Under Armour is trading roughly 35% above its 200-day simple moving average (red line) and also trading well above its 100-day (blue) and 50-day (yellow) MAs.
At 35% above its 200-day MA, Under Armour is historically well-extended as the right-here, right-now is concerned. As such, traders looking to play this frisky pup from the long side might find better levels somewhat lower in coming days. At the same time, waiting for too much of a pullback could well lead to traders missing the boat.
Any major price reversals should be taken as a warning sign that trend followers are jumping ship — that’s just good risk management.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.