Urban Outfitters (URBN) is about to enter a very low-risk buy zone following its steep fall from its post-election peak. The stock ramped over 27% during a four-day rally that drove shares well into new 52-week high territory. After testing the $41 area on Nov. 14, the stock immediately stalled and has been very weak since. For patient bulls this steep pullback is about to develop into a very low-risk entry opportunity.
Ahead of last week's earnings report Urban Outfitters had faded a bit from the post-election highs but was still above key support near the August, September and October highs. It took a massive high-volume, post-earnings hit to obliterate this solid zone. With today's 3.25% drop Urban Outfitters has now extended its post third-quarter report flush to 16%. With a little more downside follow-through, the stock will enter a very important area. A hold in this zone should be viewed as a confidence booster for patient bulls.
In the near term Urban Outfitters should be considered a low-risk buy while in the $32 to $30 area. This important support zone is marked by the stock's powerful earnings-inspired breakout gap left behind back on August 17 . Just above this level is the stock's 200-day moving average. If the stock can stabilize here a healthy rebound could be on the way. On the downside, a clear break of the $30 area would be a clear warning sign that overhead pressure is still too great.
Also of note is that Urban Outfitters sports a fairly high short interest ratio (6.2). If a bottom is reached soon this will certainly add some fuel to the rebound phase.