Abercrombie & Fitch (ANF) was a retail success story back in 2023, but has traded sideways since a May 29 record high of $196.99. The bottom fell out earlier this week when the company reported fiscal-year guidance that fell short of expectations — a figure that overshadowed robust holiday sales and demand. ANF took a 15.7% haircut on Monday, its worst single-session decline since a 17% post-earnings drawdown on Aug. 28.
Thanks to these two outsized bear gaps, the stock is trading at its lowest level since May. Contrarian traders, however, should take note, as ANF’s pullback is testing a historically bullish trendline, among other intriguing signals.
The trendline in question is the stock’s 320-day moving average. Per Schaeffer’s Senior Quantitative Analyst Rocky White, Abercrombie & Fitch stock has traded down to this trendline two times in the last three years. For the purpose of this study, White defines that as the equity trading above the moving average for 80% of the time over the past two months and closing north of the trendline in eight of the last 10 sessions, before getting within striking distance of the moving average.
Per White’s data, ANF averaged a 10.3% return one month later and finished higher both times. Considering its current closing perch at $128.11, a move of similar magnitude would help the equity pare its 14.1% year-to-date deficit, and return the equity to the channel seen in the chart below. Keep an eye on the stock’s 50- and 200-day moving averages as well; if the former crosses back over the latter, it will form a ‘golden cross’ bullish breakout pattern.
There are more contrarian developments options traders should be monitoring. The nine-month choppiness could now be classified as an overcorrection, considering the stock’s descending 14-Day Relative Strength Index (RSI) of 35 is at its lowest level since early August and on the verge of “oversold” territory. And while shorts are cheering the start to 2025, there’s still short-squeeze potential in the event of a V-shaped rally. Short interest is down 9.5% in the most recent reporting period, yet the 4.33 million shares sold short account for a healthy 8.8% of ANF’s total available float.
Options look to be an attractive route if you want to take a flier on the stock. ANF’s Schaeffer’s Volatility Index (SVI) of 48% ranks in the relatively low 9th percentile of the last 12 months. What’s more, the security’s Schaeffer’s Volatility Scorecard (SVS) sits at a low 17 out of 100, making the security a prime premium-selling candidate.
Read the full article here
