Under Armour (UAA) - Get Report on Monday before the open reported third-quarter earnings and beat analysts' estimates. Before releasing its results, however, the sports-apparel company confirmed a federal accounting probe.
The stock opened Monday at $17.83, above its Aug. 28 low of $17.64 and 14% below its monthly pivot for November at $20.85.
My call is to sell strength to its monthly and quarterly risky levels at $20.85 and $23.19, respectively.
Under Armour is RealMoney's Stock of the Day.
The ongoing federal regulatory inquiries will likely hurt the stock performance near term. Here's the coverage as reported by TheStreet.com.
Under Armour stock has been in bear-market territory since it set a 2019 high of $27.72 on July 25. Problems for the Baltimore company began in July when the stock gapped significantly lower following its July 30 earnings report. Back then, the company projected declining sales in North America.
The stock closed Nov. 1 at $21.14, up nearly 20% year to date and in bull-market territory 28% above its Dec. 26 low of $16.52. More important, the stock is in bear-market territory, 24% below its July 25 high of $27.72.
Under Armour set its all-time high of $54.70 during the week of Sept. 18, 2015. From this high, the stock plunged 79% to a multiyear low of $11.40 during the week of Nov. 10, 2017.
This is not a stock for value investors as its P/E multiple is elevated at 87.87, and the shares don't pay a dividend, according to Macrotrends.
The Daily Chart for Under Armour
Courtesy of Refinitiv XENITH
The daily chart for Under Armour shows the stock had a bullish "key reversal" day on Dec. 26. The stock traded to its 52-week low that day at $16.52, then closed the day at $17.84, above the Dec. 24 high of $17.36. The stock ended 2018 at $17.67, which was an important input to my proprietary analytics, and its annual risky level is well above the chart at $37.34. The close of $25.35 on June 28 was an input to my proprietary analytics, and the second-half value level is below the chart at $9.75. This reflects the extreme volatility that's shown on the chart. The price gap lower on July 30 was caused by a negative reaction to earnings. The close of $19.94 on Sep. 30 was input to my analytics and resulted in the fourth-quarter risky level at $23.19. The close of $20.65 on Oct. 31 was another input to my analytics and my monthly pivot for November is $20.85.
The Weekly Chart for Under Armour
Courtesy of Refinitiv XENITH
The weekly chart for Under Armour ended last week positive, but that will end this week given a close on Friday, Nov. 8, below its five-week modified moving average of $19.96. The stock is below its 200-week simple moving average or "reversion to the mean" at $24.67. The 12x3x3 weekly slow stochastic reading is projected to rise to 44.58 this week from 38.77 on Nov. 1. When this reading trends lower, the weekly chart will become negative.
Trading Strategy: Reduce holdings on strength to its monthly pivot at $20.85 and to its fourth quarter risky level at $23.19.
How to use my value levels and risky levels:
Value levels and risky levels are based on the past nine monthly, quarterly, semiannual and annual closes. The first set of levels was based on the close 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.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.