Foot Locker Stock May Soon Be a Buy Despite Earnings Pain

Foot Locker stock is sharply down on Friday on worse-than-expected earnings. Here's how to trade the stock as it approaches potential support.
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Shares of Foot Locker  (FL) - Get Report are getting stomped on, down as much as 14% in Friday’s trading session.

The retail environment is tough right now. Even though Nike  (NKE) - Get Report has been doing pretty well, it’s been able to rely on its strong brand and digital sales channel. Foot Locker depends more on foot traffic, and the results show.

A loss of 67 cents a share missed estimates by 44 cents, while revenue of $1.18 billion sank more than 43% year-over-year and missed estimates by $130 million. Analysts just couldn’t be bearish enough on this name into the print.

It’s not so much a critique of Foot Locker as it simply is the way an intense lockdown goes. There was not much that the company could do under the circumstances.

Given that Foot Locker stock was up more than 50% from its 2020 low, the selloff isn’t a surprising reaction today. Let’s take a closer look at the charts.

Trading Foot Locker Stock

Daily chart of Foot Locker stock.

Daily chart of Foot Locker stock.

Foot Locker stock is trading in a pretty well-defined channel (blue lines), bouncing nicely from the lows. 

In fact, it’s pretty impressive given the lackluster action we’ve seen in other retail names. Take Macy’s  (M) - Get Report, for example, which is trying to bottom but has barely been able to rally over the past few months.

On the dip, we’re seeing the 20-day moving average step in as support for Foot Locker. For aggressive buyers, that may be enough to entice them. Under the circumstances, however, investors may prefer to wait for a better risk/reward setup.

In that case, I’d like to see if we can get a dip down into the $23-to-$23.50 area. There, Foot Locker stock will find its rising 50-day moving average, as well as channel support. It will also find the 23.6% retracement at $22.80.

That should give the stock some support and help propel a move back up toward $25-plus. Above $25 and Foot Locker may be able to fill the gap up toward $28.25. Above that and channel resistance could be in play.

On a move below the 50-day moving average, see that Foot Locker holds $22. Below that and the bears could gain momentum.

Is Foot Locker the best buy in the market? No. But if the shares trade down to support and support holds, it should be good for a trade.