In an impressive show of strength, shares of Under Armour (UA) - Get Report rose over 300% from their 2013 low to their 2015 highs. Last week, however, signs of technical fatigue appeared after the stock closed below its 40-week (200-day) moving average for the first time in three years.
The weekly chart shows Under Armour crossing above the 200-day average in April 2013 and then making a series of higher highs and higher lows, without once penetrating the average until just last week. This narrow and measured movement became more volatile over the last five months, as reflected in the jump in the average true range indicator. The relative strength index peaked in August and recorded a lower high the following month, even as the stock was making a higher high. At the same time, Chaikin money flow began to decline, and the money flow index, a volume-weighted relative strength measure, moved out of an overbought condition and is currently below its centerline.
On the daily timeframe, the price action over the last two months has been an orderly series of lower highs and lower lows under a declining trend line. The Aroon indicator at the top of the chart identifies the strength of a trending stock by making bullish and bearish crossovers. In October, as the stock was losing positive momentum, the red indicator line moved above the green line, which is a bearish indication. Accumulation/distribution is below its signal line, and Chaikin money flow, a 21-period average of the A/D line, is below its centerline. The price momentum and money flow indications on both the weekly and daily time frames suggest the direction of the stock price, for at least the short term, is lower.
Under Armour is a speculative short sale at its current level using a position size that accommodates an initial buy-to-cover stop above the two month downtrend line.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.