Shares of popular sports apparel company Under Armour Inc (NYSE:UA) have been showing some concerning weakness as of late after an amazing multiyear run higher. Shares of rival Nike Inc (NYSE:NKE) have fallen as well, as gravity has finally begun to kick in — at least partially as a result of the drop in brick-and-mortar retailers.
If and when UA stock looks more constructive again, I would be prone to buy it for longer-term growth in the company. But for the time being, active investors and traders may find better opportunities on the short side of Under Armour, at least for a trade.
When Under Armour reported its latest batch of earnings in mid-October, it topped analyst forecasts and raised its fiscal year 2015 revenue outlook. However, with expectations already high and UA stock technically overbought, Under Armour didn’t find support and began to fall, causing plenty of technical damage on its daily chart.
UA Stock Charts
Before looking at the daily chart, however, let’s get some perspective from the multiyear view, which quickly reveals an ultra-steep slope in a stock that was an absolute momentum and trend-follower favorite.
Indeed, trend followers over the past few years had wonderful opportunities to buy UA stock at its red 200-day moving average, selling it at the top of the upsloping range in what was a rinse-and-repeat process. Trend followers are aware that this process works until it doesn’t, and with this simple moving average now at a real threat of being violated for the first time in years, there is risk that UA stock could swoosh lower in the not-too-distant future.
On the closer-up daily chart, we see that the real difference this time around is that the moving average is being attacked from a lower high versus the September highs and that a technically sound head-and-shoulders topping pattern is in place. The stock began this topping process over the summer, building a left shoulder, which after the August lows led to another sharp rally that marginally surpassed the summer highs.
Last week’s lower highs then completed the pattern, and while UA stock is potentially somewhat oversold in the immediate-term, the weight on the black horizontal line (known as the neckline of this formation) is heavy.
Active investors could play the stock to the downside with an initial downside target in the mid- to high $70s while respecting any strong bullish reversal as a sign to close the trade.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
