Since the recent lows in stocks back in June the rising tide managed to lift the majority of stocks higher with it. For those stocks that did not participate there are usually two schools of thought; a) they will catch up and move higher soon or b) they are weak for a reason and will remain under-performers.
When I look at Abercrombie & Fitch (ANF), a stock that I’ve followed for many years, I currently see a mix of the two thoughts above. Yes I think the stock is weak for a reason. It doesn’t take much to see the declining sales, profit margins, rising cost of goods sold, and general (if only temporarily so) weakening of the brand itself. On the other hand, we still very much live in an environment where the market swings from one central banker statement to the next and any further supportive action on the part of central banks may easily lead to higher stock prices, including those stocks that shouldn’t deserve to rise. By extension that could lead under-performing fund managers to buy stocks across the board just to play catch up, and thus maybe also giving a stock like Abercrombie & Fitch (ANF) a lift.
Year to date the stock is down just over 25%, weak as weak can be. The stock has however also moved about 25% higher in the month of August and now sits below a three-month resistance area. Simply put, a daily close nicely above the $37.50 – $38 area could move the stock up into the $42 – $43 area. Stops could be set near $33.70.