The ongoing turnaround in shares of Abercrombie & Fitch Co. (ANF) received a boost in pre-market trading this morning following better than expected earnings.
The struggling retailer reported earnings of $1.08 per share which far exceeded analyst estimates for earnings of 99 cents. Wall street initially cheered the beat, sending ANF shares 6% higher by the opening bell.
Unfortunately, the gains lasted all but a nanosecond before profit takers rushed in amid an epic sell the news reaction.
ANF shares finally reached a bottom and are currently up 1.3% as of this writing. Perhaps shareholders should have anticipated some profit taking. As is usually the case, the sell the news reaction was prefaced by classic buy the rumor action. ANF stock was up 25% in the past three weeks before this morning’s 6% pop.
In true efficient market behavior, the crowd once again priced in the good news before it became a reality.
So what’s the play when all the dust settles surrounding earnings? Abercrombie & Fitch has had a dismal few years and ANF stock has made some serious strides this year. And it’s about time. On the technical front, ANF looks solid, Wednesday’s scary red candle notwithstanding.
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The 20-day and 50-day moving averages are climbing, showing the bulls have successfully turned the short and intermediate-term trends higher.
Perhaps most impressive is the reversal of the long-term trend. The oft-watched 200-day moving average is now pointing higher for the first time in a year.
Abercrombie stock fans looking for a continuation in earnings growth should treat pullbacks like Wednesday’s as buying opportunities.
Try This ANF Option Trade on for Size
Long call spreads present a straightforward way for participating in further upside over the coming quarter. Buy the ANF May $28/$32 call spread for $1.70 or better. The vertical spread consists of buying to open the May $28 call while selling to open the May $32 call.
The max risk is limited to the initial $1.70 debit and will be forfeited if ANF stock price sits below $28 at May expiration. The max reward is limited to the distance between strikes minus the net debit, or $2.30, and will be captured if the stock can rise above $32 by expiration.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
