Apparel companies are under assault. For many years, it was thought that the industry leaders could do no wrong, but every stock is bound to have a bad year at some point.
For many of those in the industry, including a few that we’ll talk about today, it has certainly been a time investors who went long would prefer to forget, unless you investing in American Eagle Outfitters (NYSE:AEO), which is up nearly 20% for the year.
But notable players such as Abercrombie & Fitch Co. (NYSE:ANF) and Gap Inc (NYSE:GPS) and are down nearly 40% and 5%, respectively.
With that said, let’s dive in to see which plays are breaking down and which ones stand the strongest chance to rebound and make their way higher again.
Apparel Stocks to Watch: Hanesbrands (HBI)
Click to Enlarge Hanesbrands Inc. (NYSE:HBI) is a manufacturer and marketer of apparels, operating through four segments (Innerwear, Activewear, Direct to Consumer and International). Some of the brands we all know (Hanes, Champion, Playtex, L’eggs, Wonderbra, etc.) are all in its lineup.
It’s been rough ride for investors over the past year. HBI is down 11.67% as of this writing, and shares just cannot seem to break through the 200-day moving average with any conviction. There have been numerous attempts, but they only proved to be an excellent opportunity for bulls to take profits off of the table.
In the adjacent chart, you’ll see that Profit Scanner, powered by Recognia, picked up on underlying weakness at the right time. Its first long-term sell signal event came on Feb. 28, 2015 just prior to HBI’s peak. Investors who acted would have been able to reallocate capital into other investment opportunities instead of sitting on dead money for greater than a year.
Using the Profit Scanner software, we did a little extra digging and found that long-term support is currently pegged at $26.40. While price has temporarily spiked below this mark in the recent past, investors will need to be on the lookout for additional weakness that could produce lower lows before a bottom is ultimately found.
For the longer-term bullish trend to remain intact, the stock price cannot fall below roughly $10 per share. The reason major support is found so far beneath $26.40 support is due to the parabolic nature of the climb that HBI made from mid-2012 to its peak in early 2015. It was a steady and uninterrupted move from just under $10 all the way up to about $35 per share.
Now, although it is encouraging to see HBI consolidate in sideways fashion, it is probably premature to leap in at this time, especially while shares are relentlessly pressured below the 200-day moving average. But if price climbs above the 200-day and springs up and away from the new base it has built, investors could see a retest of old highs at a minimum, with the likelihood of even greater returns if HBI manages to establish new highs.
Apparel Stocks to Watch: Under Armour (UA)
Click to Enlarge Under Armour Inc (NYSE:UA) was founded in 1996 by former University of Maryland football player Kevin Plank. The company focuses primarily on performance apparel, engineered to make individuals better any time they hit the field.
As stated on the company’s website, they introduced the ColdGear fabric in 1997 to keep athletes warm, dry and light in cold conditions, followed by the AllSeasonGear line, which keeps them comfortable between the extremes.
Using Profit Scanner, we are able to get a quick assessment of UA stock. Similar to HBI, the wheels slowly started to come off in the final months of 2015. After a steep drop from about $55 to $32 per share, investors have been whipped back and forth in UA. What appears to be a meandering stock with no direction is actually one locked in orderly chaos, but only if you pull back and look at a longer timeframe rather than the day-to-day fluctuations.
As the zig-zags grew tighter and tighter, it became clear that the price formation was that of a technical “Symmetrical Triangle” pattern. While we know this to be a continuation of the trend, which is currently bearish in nature, it is important to wait for confirmation prior to initiating a trade in anticipation of further price declines.
Profit Scanner recently provided subscribers with two events (price below 50-day moving average and price below 21-week moving average) back on Aug. 31 and Sept. 2, respectively. These two bearish events helped push shares down and out of the symmetrical triangle, confirming the continuation of the prior bearish trend. This means that shares should hit $30 in the weeks and months ahead and could potentially slice through that level without much of a fight.
Apparel Stocks to Watch: VF Corp (VFC)
Click to Enlarge VF Corp (NYSE:VFC) was organized in 1899 and is a global leader in branded lifestyle apparel, footwear and accessories. VF’s businesses and brands are organized into four categories called coalitions, consisting of Outdoor & Action Sports, Jeanswear, Imagewear and Sportswear.
After a virtually uninterrupted bullish run since the start of the Financial Crisis recovery in early 2009, shares of VFC have been going through a bit of a pullback lately, seemingly in line with the period of weakness that others in the industry have experienced as well.
As you can see in the chart, VFC has provided users of Profit Scanner with a slew of bearish alerts, and all of them happen to revolve around price falling below key moving averages (50-week, 200-week and 200-day).
This could easily mark the beginning of the next wave down if shorts become encouraged and bulls finally give in and exit positions out of fear. Needless to say, now is most likely not the time for longs to stay in and hope for the best.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.
