Trade of the Day: Urban Outfitters (URBN)

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Stocks largely took a bank holiday on Monday, trading within a teeny tiny range and eking out a teeny tiny gain. The Treasury bond market was closed, the U.S. dollar was flat, as was gold, and oil was crushed, settling 5.1% lower.

It was a very quiet day for news flow, as U.S. government offices were closed in observation of Columbus Day. All sectors except energy and materials finished in the black.

The little news that emanated from the halls of power came largely from the Federal Reserve. As the Wall Street Journal reported on Sunday, Vice Chair Stanley Fischer said the Fed is taking a “cautious approach” to rate lift-off deliberations. (We knew that.) Chicago Fed President Charles Evans essentially reiterated Friday comments, stating that he would prefer to wait until mid-2016 to raise rates. Atlanta Fed President Dennis Lockhart repeated Friday comments that an increase in rates remains likely this year. Average those out and you are looking at maybe January or March.

Looking ahead, October has a fearsome reputation — but it is largely undeserved. The month has featured a lot of the great turnarounds of the past 40 years, and this month is shaping up to be one of them. There’s still a good chance that the bears will return in a big way…but, for now, the historic seasonality will provide a tailwind for bulls.

Bespoke Investment Group analysts provide a snapshot of seasonal returns every two weeks. They say that the winds have shifted as we approach mid-October.

As shown in the Bespoke table and chart below, they point out that the S&P 500’s median return from Oct. 12 through Oct. 26 has been a gain of 1.3%, with positive returns 60% of the time. Also, they note that in each of the last two years the period from Oct. 12 through Oct. 26 has seen gains of more than 3%.

Trade of the Day: Urban Outfitters, Unc. (URBN)

In terms of individual sectors, Bespoke data shows that nine out of 10 have seen gains over the next two weeks. Leading the way to the upside are materials and energy, which have both seen median gains of more than 2%.

The sector that has been the most consistent to the upside is technology, which has seen positive returns 80% of the time. After that, four other sectors (energy, consumer discretionary, utilities and consumer staples) have all had positive returns 70% of the time, according to the Bespoke data.

With all of this in mind, I’m recommending a bullish trade in Urban Outfitters, Inc. (URBN) today.

Trade of the Day: Urban Outfitters, Inc. (URBN)

Urban Outfitters is a $3.8 billion retailer that operates under its namesake brand as well as Free People and Anthropologie. The shares have lost $20 since March but appear ready to rebound for the winter along with many other beaten-up apparel vendors. The company introduced an innovative labor practice in the past week: asking salaried employees to work for free on the weekends in picking and packing for wholesale as a “team-building” exercise. Oh, brother.

URBN shares slipped 1.5% on Monday but remain in their consolidation zone. They are cheap and could catch fire.

Buy URBN at $31 limit, good till canceled, for target $33.75. Set a protective stop at $29.50 limit, good till canceled.

Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation.


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