With yesterday’s broad market sell-off plenty more stocks are now showing their real colors and are setting up for juicy risk/reward swing trades in the near-term.
One group of stocks that has been on my radar to try the short side of are the apparel retailers. I discussed a short-side trade in Ralph Lauren (NYSE:RL) on February 7. The trade is now solidly profitable and many more stocks in the group are also gaining downward momentum.
From a longer-term point of view the stock started breaking below its latest steep up-trend in September 2012, which quickly led to a trend reversal.
In December 2012 the stock started a reb0und in sync with the broader market rally, which came to a screeching halt on February 7 as it bounced into a confluence resistance area. This confluence area near $62 is made up of the stock’s 200 day simple moving average as well as the 50% Fibonacci retracement of the swing lower from the September 2012 highs down to the December 2012 lows. Just as the stock moved into the confluence resistance zone, it also left a bearish candle with a long tail behind on the daily chart on February 7. The resistance zone has now proven its worth and the stock has since gained good downward momentum.
Click to Enlarge While the stock may be somewhat oversold in the immediate term, the next downside profit target is the bottom of the up-gap from January 3, near $54.50. Beyond that should the stock be able to again test the December lows near $52 it should eventually gain enough steam to break below there and move closer to the $48 level. The area around the $48 level also corresponds with the 61.80% Fibonacci retracement level of the steep rally off the August 2011 lows up to the August 2012 highs.