Abercrombie & Fitch (ANF) - Get Report , the casual apparel and accessories retailer, reported mixed third-quarter results Tuesday. On the plus side of the coin, the retailer reported a rise in same-store sales in the U.S. However, overall same-store sales slipped on overseas weakness.
The stock is trading between its semiannual value level at $14.78 and its weekly risky level at $17.26 with its monthly pivot at $16.31 a magnet.
The stock closed Monday at $16.33, down 18.6% year to date and in bear market territory 46.4% below its 2019 high of $30.48 set on May 3. The stock is in recovery mode 20.3% above its Sept. 3 low of $13.58.
Shares of Abercrombie & Fitch have experienced extreme volatility since trading as high as $85.77 in October 2007. The stock crashed by 84% to a low of $13.66 in November 2008. Its post-crash rally peaked at $78.25 in July 2011 for a more than five-fold gain. The stock then crashed again by 88% to a low of $8.81 in July 2017. These are clear reasons why charting a stock is so important. Obviously, this stock is not a "buy and hold" investment.
Fundamentally, the stock is reasonably priced with a p/e multiple of 17.5 with a generous dividend of 5.05%, according to Macrotrends. The retailer ended a winning streak of beating earnings per share estimates in its prior nine quarters.
The Daily Chart for Abercrombie
Courtesy of Refinitiv XENITH
The daily chart for Abercrombie shows price gaps higher and lower in reaction to earnings reports in 2019. There was a price gap higher following earnings reported on March 6, which led the stock to its 2019 high of $30.48 set on May 3. There was a huge price gap lower on earnings reported on May 29. The price gap lower on earnings reported on Aug. 29 led to the 2019 low of $13.66 on Sept. 3. The stock stabilized following this low given the positive influence from its semiannual pivot at $14.78 which is currently a value level on today's negative reaction to earnings. The monthly pivot for November at $16.31 has been a magnet today as a stabilizer. This week's risky level is $17.26 with its quarterly risky level at $25.99.
The Weekly Chart for Abercrombie
Courtesy of Refinitiv XENITH
The weekly chart for Abercrombie is negative with the stock below its five-week modified moving average of $16.57 and below its 200-week simple moving average or "reversion to the mean" at $18.97. The stock has been below this key average since the week of May 11. The 12x3x3 weekly slow stochastic reading is projected to slip to 69.70 this week down from 71.44 on Nov. 22. When the stock was at its May 3 high this reading was 92.65 well above 90.00 as an "inflating parabolic bubble" and this bubble popped by more than 50%.
Trading Strategy: Buy weakness to the semiannual value level at $14.78 and reduce holdings on strength to its weekly risky level at $17.26.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.
The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.
The quarterly level changes after the end of each quarter so the close on Sep. 30 established the level for the fourth quarter.
The close on Oct. 31 established the monthly level for November.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.
Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.