Sunday, August 3, 2014

ARO Aeropostale Weekly Chart Oversold Falling Wedge Positive Divergence

The Three Stooges of the retail sector are ARO, AEO and COH. The teen retailers have been bludgeoned over the last year but the back-to-school sales are now in play and perhaps parents will permit the teens and tweens to buy an extra outfit or two for the new school year. ARO is slapped silly collapsing from 22 two years ago and collapsing from the sideways channel bottom rail at 12 late last summer. The drop from 12 to 3 is a 75% collapse. From 22 to 3 is -86%. That's going to leave a mark.

Now that ARO is beaten senseless, bleeding and laying behind the dumpster in the dirty alley way behind the Chinese restaurant, the ambulance should arrive to begin the road to recovery. There were playable long bounces for ARO in June and July. The retail stocks such as BBY, JCP, HPQ, NFLX and others were all left for dead over the last couple years but they all stage a strong comeback. RSH is one example of a falling knife catch that was not successful with the stock at 0.58 cents and perhaps bankrupt. ARO, AEO and COH all have similar charts and they are the next beaten down retailers up at bat.

The blue downward-sloping channel remains in play. The green lines show universal positive divergence, and the daily chart is positively diverged, so a bounce is anticipated, but with knife catches you just never know. The pink dots show the drastic overextension to the downside with price way under the moving averages so a mean reversion higher is desperately needed. Keystone is back in ARO on the long side looking for a recovery. ARO, AEO and COH are attractive long trading opportunities for both the day and short term traders as well as long term investors. ARO is expected to base and move sideways to sideways higher moving forward.

The 3.20 level is critical since price will likely bounce or die from here. Keystone's 80/20 rule says 2's lead to 8's so a failure at this 3.20 level will likely lead to 2.80 where an add to the long side or initial entry to a long position can occur. A bounce or die move from 3.20 will likely occur on Monday or Tuesday. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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