Shares of sports apparel giant Under Armour took a major hit Tuesday. The stock opened the session with a huge earnings-inspired gap that dropped shares over 13%.
This major breakdown, which attracted the heaviest downside trade since 2008, drove UA below multiple support zones. The stock is now within striking distance of its 2016 low and will soon become a very low-risk buy for patient UA investors.
At the end of UA's post-Brext rally the stock suffered an ugly downside reversal. After reporting second-quarter earnings the stock left behind an important spike high in late July. UA mounted a rebound in August but attracted very little bullish interest.
Soon after the August rally ended the stock fell into a very narrow range just below a downward-sloping, 200-day moving average. This tight action continued into October as overhead pressure intensified. All that was needed was a little push to spark a fresh down leg. Yesterday, UA received a powerful shove.
For patient Under Armour bulls the current breakdown will soon provide an entry opportunity. As UA begins to pierce the $32 level it will enter a major support zone that includes the 40-week moving average, the 2016 low and a very important high left behind back in March 2014. UA has not tested its 40-week moving average since August 2010.
If the stock can regain its footing near this zone, a significant low could develop. On the downside, a close below the $30 area would indicate a much more prolonged bottoming process is ahead.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.