Avoid Abercrombie Until ANF Stock Makes Up Its Mind

by Serge Berger | November 22, 2013 8:51 am

Avoid Abercrombie Until ANF Stock Makes Up Its Mind

Abercrombie & Fitch (ANF[1]), the specialty clothing retailer known for showing lots of skin in its advertisements reported its third-quarter earnings on Thursday before the start of trading.

beatthebell 185x185 Avoid Abercrombie Until ANF Stock Makes Up Its Mind[2]The company posted a loss of $15.6 million for the quarter, or 20 cents per share. That’s a poor showing compared to Q3 last year, when the company posted a profit of $84 million, or $1.02 per share. Excluding one-time items, though, ANF reported a gain of 52 cents per share, which was slightly better than what analysts had expected. However, the company’s gross margin shrank to 63% from 64.3% and its net sales declined 12%.

The mixed news didn’t do much to the stock, which closed the day just about unchanged.

Like any stock that is closely watched by the active trader community, ANF is no stranger to the rumor mill. Earlier this week it was rumored that Abercrombie & Fitch had hired Goldman Sachs as an adviser for handling a possible sale of the company. If there is any truth to this, traders should ready themselves for a stock that could begin trading in choppy fashion for some time.

On the stock’s multiyear chart, the two important lines of reference remain around $30 for support and around $55 for medium term resistance. Until either of those levels break, ANF is likely to keep chopping back and forth. Put differently, should the stock slide below the multiyear $30 support level, all bets may be off, and the stock could be on its way another $10 lower toward the $20 area.

anf weekly Avoid Abercrombie Until ANF Stock Makes Up Its Mind
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Closer-up on the ANF daily chart — and likely more relevant for most people looking at this stock — the bears need to keep a close eye on the bear flag currently in play. A┬ádrop below $34 would trigger a breakdown and would likely lead to a re-test of the big picture support area discussed above, around $30.

ANF DAily Avoid Abercrombie Until ANF Stock Makes Up Its Mind
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Alternatively, if ANF manages to break above horizontal resistance at $38.80, the stock would quickly enter into the big empty space above, which exists as a result of the large gap downward on Aug. 22. Over time, this could get ANF moving toward its 200-day simple moving average (red line in chart below), currently just shy of the USD 45 mark.

All in all, ANF remains trading in a neutral-to-bearish chart pattern, and bulls shouldn’t look too seriously at the stock from the long side until it can break above at least $38.80.

Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here[3]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. ANF: http://studio-5.financialcontent.com/investplace/quote?Symbol=ANF
  2. [Image]: http://investorplace.com/hot-topics/beat-the-bell/
  3. clicking here: http://www2.marketfy.com/l/15492/2013-10-08/5htq5

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