The G-Man Initiates Coverage Of AEOS With A

I want to
make it clear
that I am merely trying to bring to light the recent
activity in one of the apparel retailers that has enjoyed a 500%+ run in the

past seven months. When
you look through the entire sector of apparel stocks
and
retailers, you will see a similar trend of high volume insider selling

over the course of the
past few months. Let’s take a look at a few of them:

The first of which is American Eagle
Outfitters (AEOS). Yesterday, the Dow
Jones
Newswire posted a summary of insider trading activity for this stock.

It read as follows:

FILER: SCHOTTENSTEIN, JAY L.

TITLE: Chairman of the Board

TRANSACTION: Sale: 1,700,000 — 01/05/01-01/11/01 — $46.27-$47.96

OWNERSHIP: 8,695,845

FILER: RETAIL VENTURES INC.

TITLE: Beneficial Owner

TRANSACTION: Sale: 1,000,000 — 01/05/01-01/11/01 — $46.27-$47.96

OWNERSHIP: 4,855,450

FILER: HOFFMAN, GERALDINE
SCHOTTENSTEIN

TITLE: Beneficial Owner

TRANSACTION: Sale: 800,000 — 01/05/01-01/11/01 — $46.27-$47.96

OWNERSHIP: 7,931,109

FILER: DESHE, ARI

TITLE: Director and Beneficial Owner

TRANSACTION: Sale: (Option Related) 210,500 — 01/05/01-01/11/01 —
$46.27-$49.17

OWNERSHIP: 4,015,779

FILER: KOLBER, GEORGE

TITLE: Officer and Director

TRANSACTION: Sale: 59,628 — 01/05/01-01/30/01 — $46.27-$96.00

OWNERSHIP: 256,878

FILER: LEEDY MICHAEL J

TITLE: Vice President

TRANSACTION: Sale: (Option Related) 42,417 — 01/12/01 — $50.03-$50.04

OWNERSHIP: 20,000

FILER: DOOLAN, MARTIN P

TITLE: Director

TRANSACTION: Sale: (Option Related) 11,500 — 01/09/01 — $48

OWNERSHIP: ZERO

FILER: MARAKAS, JOHN L

TITLE: Director

TRANSACTION: Sale: (Option Related) 19,500 — 01/31/01 — $57.25-.88

OWNERSHIP: 26,500

In addition, there were several
corporate sellers who blew out of much
smaller
quantities of stock ranging from 4,000 shares to 10,000 shares. I
only
listed the larger block sellers above.

If these insiders are selling such
enormous quantities of their own stock, why
should
we be buying it?

The total of these insider sales for
the past month is around 3.8 million
shares
of stock. The float on AEOS has been 12.1 million shares with 46.44

million shares outstanding. Keep in mind
that any insider sales come from the
“shares
outstanding” number and are added to the float once they are sold on

the open market.

As you can see on the chart below,
AEOS has risen nearly 500% in the past seven
months.
Yet after this incredible run and excessive insider sales, we have
not
heard any warnings or negative comments from the analyst community.

Makes you wonder, eh?

The chart below clearly displays the
red carpet being laid out for the 3.8 million shares of AEOS that were sold last
month. There were millions more
sold
by insiders during the prior six months.

The only slightly cautionary comments
I have found concerning AEOS were issued by analyst Janet Joseph Kloppenburg of
Robby Stephens:

“AEOS shares currently trade at
24.6x our $2.37 F2001 EPS estimate, a significant premium to the specialty
apparel peer group’s 16-17x F2001 P/E
multiple…At
the shares’ current premium valuation, the stock appears to
be
fully discounting the upside potential that we believe AEOS’s current

business momentum is
capable of generating. Therefore, we believe the
shares
are best suited for longer-term oriented investors, given that
near-term
appreciation may not be significant.”

Still, this analysts does not address
the unusually high insider selling
activity
that has taken place with the stock.

The recent moves up by
stocks like AEOS have been somewhat counterintuitive
in
the face of mounting layoffs, continuing slowing in the economy, falling

consumer confidence,
dismal holiday sales, and record consumer debt.
Nevertheless,
it is the job of investment banking and brokerage arms to work
hand
in hand in achieving the best possible results for their corporate

clientele. This similar
pattern of insider selling into retail buying is
seen
throughout the retailing and apparel sectors as evidenced by stocks

like
(
TLB |
Quote |
Chart |
News |
PowerRating)
,
(
MAY |
Quote |
Chart |
News |
PowerRating)
,
(
MW |
Quote |
Chart |
News |
PowerRating)
and
(
ANF |
Quote |
Chart |
News |
PowerRating)
.

From a fundamental perspective,
although AEOS and other specialty retailers
have
been issuing news releases about their increases in sales totals, we

have not heard any
positive comments about the integrity of their profit
margins.
In fact, it is widely known that retailers across the board deeply

discounted their
merchandise in December and January in order to decrease
their
inventories.

This appears to be the same dilemma
that has plagued the personal computer
manufacturers.
Sales numbers are healthy, but profit margins have suffered
considerable
due to discounting.

Hey, AEOS insiders and analysts, The
Crocodile Hunter (Steve Irwin) just called. He wants all of you on his
“World’s Most Deadliest Snakes” show.

On to the other casino, the Nasdaq
Composite.

As seen in the chart above, the Nasdaq
Composite met resistance and turned
back
down at the level I pointed out yesterday. As such, unless the market

can shrug off the
additional bad news it was handed aftermarket, it appears
as
though this resistance will hold.

Isn’t it interesting that once again
we heard about all the institutional and mutual fund buying that took place
today, when in fact, the market was too
weak
to break through primary resistance on a 60-minute chart?

After the close today, Nortel Networks
warned of a sharp first quarter earnings and revenue shortfall, saying that the
U.S. economic slowdown is
“faster
and more severe” than it had expected. Also, it did not expect a

significant recovery in
the broader economy before the fourth quarter. In
addition,
Nortel announced another 4,000 jobs would be slashed, on top of the

6,000 jobs already cut. In
addition, Dell Computer announced that it would
lay
of 4% of its workforce and failed to meet its lowered EPS forecasts of

0.19 per share.

This market is looking like it is
operating in a plastic bubble that is unfazed by reality. It is only the
“perception” of reality that matters.
If
I recall correctly, didn’t the crew of the Titanic have its orchestra play

on the deck to calm the
passengers as the ship was sinking?

Long Watch: After the
close today, nothing looks safe.

Short Watch: Same as yesterday, plus
technology if the NASDAQ doesn’t bounce
immediately
after a possible gap down tomorrow morning.

Have a nice evening and a pleasant
tomorrow.

Goran