While the discussion of an economic recovery is still much debated, the stock market is technically still above its September breakout and the benefit of the doubt must still be given to the bulls. With this in mind, traders that focus on strong stocks in the appropriate sector can greatly improve their chances of success.
Several apparel stocks remain in a good position despite the recent weakness in the markets. The consumer discretionary stocks should do well as a group early in a bull market as consumers begin to feel more comfortable with the economy. Check out Ross Stores (Nasdaq:ROST): this stock broke out from a consolidation in October, and it refused to give up any ground during the recent market weakness. In fact, ROST is beginning to emerge from a bull flag pattern that could take it to much higher prices.
Another apparel stock that recently cleared a consolidation pattern is Urban Outfitters (Nasdaq:URBN). This stock was trading in a channel as it corrected a rally from its bear market lows in 2009. It recently broke out of this channel on strong volume and also cleared its last pivot high from September. This higher high may be a clear signal that a trend change is underway.
Lululemon Athletica (Nasdaq:LULU) is another apparel stock that may be clearing its base. This stock has been quite volatile recently, falling under its base in September before violently rebounding back to the top of its prior base. This move trapped a lot of short sellers as they were expecting a breakdown. LULU has begun to break above resistance near $47, but hasn't been able to follow through. Traders should monitor this level to see if LULU can gain some traction.
Under Armour (NYSE:UA) on the other hand, had no trouble clearing its recent consolidation. Looking back, UA cleared a larger base back in September before settling into a second consolidation in October. It was able to clear this consolidation in November, even as the markets were pulling back. It held above the breakout level near $47.50 and could be resuming its move higher from here.
The Bottom Line
The apparel group will be an interesting sector to follow as we head into the holiday season. This group would be considered an early cycle sector, which would perform well in the early stages of a recovery. If the markets are indeed forming a longer term bottom, then this group should have support from institutions looking for a longer term investment. As with all stocks, traders should monitor recent support levels to look for a change in character, but for now these stocks appear to be showing accumulation.
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.