Abercrombie & Fitch Co. (ANF) has found it hard to please young fashionistas in recent years, transitioning to e-commerce late after well-oiled competitors while embarking belatedly on a rebranding effort that removed the company’s iconic label from many store items. Its primary demographic has also changed considerably in the last decade, now burdened by a rising student debt load and lower disposable income
Net sales account for around 20% of the retailer’s total revenues, but lackluster growth in this venue isn’t helping, especially when mega stores Amazon.com Inc. (AMZN) and Wal-Mart Stores Inc. (WMT) are eating up precious market share. Long and short-term price action reflects these headwinds, with violent reversals that relinquish rally gains as quickly as they’re incurred.
ANF Long-Term Chart (1996 – 2016)
The company came public near $11.50 (post one stock split) in 1996 and fell into an immediate downtrend that found support in 1997 near $6.25. The subsequent uptrend caught fire in a momentum wave that reached $48.41 in the first half of 1999. It turned sharply lower into the new millennium, giving up nearly 100% of gains into the June 2000 low at $8.00. The subsequent bounce stalled short of the prior high, giving way to more than three years of sideways action.
A 2004 breakout lifted into a series of new highs that culminated in the mid-80s in 2007. It posted a topping pattern at that level and broke down with world markets during the 2008 economic collapse, finally coming to rest in the lower teens. Keep that level in mind because it’s now come back into play, nearly eight years later. A 2009 recovery wave unfolded at the same trajectory as the prior decline, lifting price within 8-points of the 2007 high in 2011.
That peak marked the highest high in the last five years, giving way to a multi-wave decline that just reached support at the 2008 high. Looking back, major declines also posed reversals at that level in 1998, 2000, 2001, 2002 and 2015, significantly raising odds it will soon gain ground in a large-scale recovery swing. The Nov. 18 earnings report could provide the catalyst for that rally.
ANF Short-Term Chart (2014-2016)
Price action off the 2011 high has unfolded in three broad selling waves, in line with an Elliott 5-wave decline structure that expects three primary and two corrective waves. Bounces have stalled four times at 200-day EMA resistance, currently located in the upper 20s while selling waves have tracked a declining lows trendline that predicts a trip to 10 if support in the upper teens breaks down.
The stock reached multiyear support this week and turned higher, lifting into a test at the 50-day EMA at 16.50. This price action issued a small scale 2B buy signal when it popped back above the August low, denoting the failure of bears to hold a new resistance level. The current bounce is unlikely to make much progress ahead of earnings unless the broad retail sector catches fire.
On Balance Volume (OBV) offer hope to beaten down bulls, crashing to a multi-decade low in March 2015 and turning higher into the first half of 2016. The indicator has held well above the 2015 low during the selloff into November, even though the stock just posted a seven-year low. This bullish divergence should underpin a buy-the-news reaction after the upcoming earnings report.
The Bottom Line
Abercrombie & Fitch has been losing ground for more than five years but has just reached a long-term support level that’s triggered six major reversals in the last two decades. This positioning suggests the long downtrend is coming to an end, with a recovery wave targeting the 200-day MA in the upper 20s.
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