Consumer discretionary stocks have rebounded in recent weeks, among them shares of athletic clothing company Under Armour Inc (NYSE:UA), which after consolidating in a sideways range are slowly beginning to break higher. Active investors can look to hop on this recent strength in UA stock with well-defined risk.
News around Under Armour has been fast and furious of late. On Feb. 4, UA announced better-than-expected earnings and revenues. Moreover, Under Armour expects to grow sales at more than 20%.
What makes UA so interesting as a growth story is its push into more technology in the sportswear space and its willingness to explore. Under Armour’s project to grow a fitness network with apps that allows people to track their fitness goals is gaining much attention, and could have the potential to grow into an entirely new business in itself.
Aside from the consumer discretionary sector showing both relative and absolute strength again in recent weeks, it also is noteworthy that shares of Under Armour competitor Nike Inc (NYSE:NKE) are also constructively positioned to push higher — at least through a multiweek lens.
UA Stock Charts
Looking at the multiyear weekly chart of UA stock, we see a stock that has a history of rallying and building higher consolidation/trading ranges. After an early 2014 rally, UA stock settled into a range that it didn’t break higher from until July, but then within a few weeks again settled into a range. After roughly six months of the latest trading range, Under Armour began to marginally break higher a couple of weeks ago and looks to be coiling up for a move higher still.
From a momentum perspective, as measured by the Relative Strength Index (RSI) at the bottom of the chart, there is plenty of room for UA to climb higher.
On the daily chart, we see that UA stock in January developed a higher low versus its October lows, and on Feb. 5 — the day after the latest earnings report — Under Armour spiked higher only to close the day near the unchanged mark. This intraday pop-and-drop confirmed the stock above the $73 area, which has acted as resistance since last September, and we have since seen shares consolidate again.
The longer Under Armour can hold and consolidate above the $73 area, the better the odds of a continued push higher toward the low $80s.
Active investors could look to buy UA stock around current levels in the mid-$70s for a push into the low $80s, using the $72 area as a first stop-loss level.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
