Bird Watching
American Eagle Outfitters on Thursday
provided a rare example (in this market) of what I like to see. But again,
caution and cash remain the watchwords for the momentum intermediate-term
trader.
If you trade intermediate term, be
sure to check out Gary Kaltbaum’s debut
commentary at TradingMarkets.com. I have great respect for Gary’s
technical acumen and trading experience. Don’t miss a single instance of his twice-a-week commentary!
Were it not for the adverse general
market and less-than-superb earnings growth, American Eagle Outfitters
(
AEOS |
Quote |
Chart |
News |
PowerRating)
delivered the kind of cup-with-handle breakout that I like to trade. The
specialty retailer jumped 2 7/8 to 40 7/16 on four times normal volume. Note the
prior big volume day on Nov. 2 also coincided with a sharp price gain. (See
black arrows in following chart.) Clear accumulation.
The specialty retailer posted Oct. 28
Q3 earnings of 61 cents a shares vs. 50 cents a year ago and topping estimates
averaging 54 cents, according to First Call/Thomson Financial. Same-store sales
rose 6.8%.
The stock has strong TradingMarkets
scores of relative strength: RS12 86, RS6 97, RS3 97. The stock is trading above
its mid level of 35 1/16 as well as its 50- and 200-day moving averages.Â
All charts in this commentary use a
logarithmic scale. Daily charts display 50-day moving averages of price (in red)
and of volume (in blue). Some daily charts may also display a 200-day moving
average (in black).
The biggest knock on the stock is
earnings growth: 22% year-over-year in the latest quarter. I’d rather see growth
of 30% or higher for the most recent quarter, although I will sometimes relax
this requirement if 12-month relative strength is in the high 90s. Not quite the
case here.Â
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.