While the rest of the market is trying to find its footing, Gap shares are getting hit hard after the retailer reported earnings.
The company reported disappointing third-quarter results and, worse, cut its full-year outlook. The shortfall comes amid supply-chain issues.
The San Francisco company's chief executive, Sonia Syngal, last night appeared on Jim Cramer’s "Mad Money" show and explained some of those issues.
In the words of Wells Fargo analysts, the company hit a “speed bump” in its recovery.
The stock is getting hit hard as a result of the report and blowing through a number of key support levels.
There may be one left, though.
Trading Gap Stock
Above is a weekly chart of Gap stock, showing some of the carnage of today’s action. Coming into the report, the shares were down 38% from the 2021 high.
A lot of investors may be forgetting that earlier this year Gap stock was hitting multiyear highs, with this year's highs not seen since 2015.
Today’s action is ugly; there’s no way to spin it. But keep in mind just how far the stock came in the process. It was up by more than a factor of seven from last year's low.
With Wednesday's action, Gap stock broke below the 200-week moving average, as well as the weekly and the monthly VWAP measures.
Worse, the stock is breaking below the $20 level and the critical $19.50 area.
To lose this zone is a big blow to the bulls, technically speaking.
If we retrace from the high down to the 2020 Covid low, we get the 61.8% retracement near $17.50.
Does that mark the bottom? In no way is that a guarantee and, quite frankly, it’s more like going out on a limb and trying to catch a falling knife.
But the level is there and if we see Gap stock find its footing and put in some type of rotation higher or reversal, it may be a decent risk/reward balance for the bulls.
On the upside, the $19.50 to $20 area is going to be key. A rally to this area that is rejected should have bulls acting cautiously.
Back above this area puts $22 in play, along with the monthly VWAP measure and the 200-week moving average.
Keep in mind, these are longer term measures and charts. There will be smaller dips and pops along the way, but this is the bigger picture.