Urban Outfitters: How to Navigate the Sticky Situation in URBN Stock

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Urban Outfitters, Inc. (NASDAQ:URBN) shares have been dropping sharply since mid-March after a steep rally kicked off the year. The most recent earnings report in May was further unkind to the URBN stock price and led to a complete erasing of the entire 2015 rally.

beat the bell stock investing adviceHowever, Urban Outfitters shares now have well-defined near-term support and resistance levels that active traders can build juicy trades around.

URBN reported first-quarter results a couple of weeks ago, producing 25 cents per share to come in a penny below estimates. Revenues of $739 million also missed analyst expectations of $758 million. And while sales did rise meaningfully on a year-over-year basis, investors didn’t seem too impressed — they punished URBN stock by a tune of nearly 15%.

Now, let’s delve into the charts:

URBN Stock Charts

To understand the current risk/reward setup in URBN stock, however, we first must look at the bigger picture, which we will via the multiyear weekly chart below.

We quickly see that Urban Outfitters has largely traded in a defined upward-sloping but wide range since the mid-2000s. Each time URBN stock reached the upper end of this range, it ultimately revisited the lower end; this once again looks to be the case at present.

The most recent visit of the upper end of this range took place in March, as a result of a steep four-month, 65% rally. The steep rally then naturally had to see a sharp mean-reversion move lower as URBN dropped 30% since the mid-March highs.

From this perspective, Urban Outfitters shares appear to be eyeballing an eventual retest of the multiyear range’s lower end.

urbn stock charts weekly
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On the daily chart, we now see that after the gap down on May 19, URBN stock began to consolidate in a tight sideways range; this is what helps traders define risk and reward, as well as entry and exit points. This type of formation occurs frequently after major news hits a stock, and the stock then either gaps up or down, followed by consolidation.

urbn stock charts daily
Click to Enlarge

For URBN stock, a push above the $35.30 area could result in an oversold bounce and at least a partial gap fill into the high $30s.

But don’t forget the bigger picture that we discussed above, which says that the tendency for the medium-term is for URBN to ultimately retest the lower end of the multiyear range before a better bounce can start. Alternatively, should URBN stock drop out of the tight multiday range to the downside and below the $33.80 area, then a move toward the lower end of the multiyear range could ensue, leading the stock to move toward the $30 area.

In short: Investors and traders could buy URBN stock for a bounce upon an attempt to break out of the recent tight range, while a drop below said range could set up a short-side trade.

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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.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/06/urban-outfitters-inc-urbn-stock-price-charts/.

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