Apparel retailing stocks are currently flashing both buy and sell signals.  In other words, the group as a whole doesn’t have much unanimity from a technical analysis point of view, which means as traders we need to look at each stock individually.

As I scanned the universe of U.S. listed apparel retailer stocks yesterday afternoon, the chart of one such retailer especially caught my eye as it seemed to be flipping a bearish pattern into a bullish setup.   When stocks turn from classically bearish setups to the bullish side, strong moves are often followed as those short the name get caught with their pants down and must cover the stock they sold short.  The stock I am looking at is none other than swing-trader darling Aeropostale, Inc (ARO).

The stock clearly remains in its down-trend since its April 2010 top despite a sharp recovery off its 2011 lows.

A little closer-up we note that the stock has been trading in a downward-sloping range between $12 on the low end and $15 on the high end since early August 2012.  Such a formation has the propensity to lead to lower prices but as we will see here shortly, the stock in this case has started to act much more positively.  On August 2nd 2012 the stock fell a sharp 33% as the company announced sales for the second quarter, leaving behind on the chart the big price gap (blue-shaded area).  The trading channel marked on the chart has resistance near the $14 mark and any solid daily close above there could easily lead the stock to scream higher and well into the blue-shaded gap area.  Furthermore, gaps often act as magnets of sorts, so an eventual move up to the top of the gap near $19.50 must be kept in the back of traders’ minds..

Zooming-up very closely, an astute eye for candlesticks quickly discovers the exceedingly positive candlesticks on the chart of Aeropostale, Inc (ARO) over the past two trading weeks.  On Friday January 18th the stock also surpassed a mini point of resistance near $13.50 (red horizontal) and now looks ready to tackle the $14 area.  A snap past $14 could lead this stock to power higher into the gap quickly despite the fact that from a momentum point of view the stock is overbought on an immediate term basis.

 

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