Filed Under:
Tickers in this Article: LULU, UA, PERY, GIII
Traders might be tempted to assume that with so many Americans still under- or unemployed, sectors like the apparel group would remain under pressure. However, the markets are a combination of current conditions as well as perceived future conditions, so while it may seem counterintuitive at times, traders are usually better served by paying attention to price action rather than trying to prove the markets wrong. Many traders have paid dearly by trying to short stocks they logically felt shouldn't be rising.

Lululemon Athletica (Nasdaq:LULU) is one such stock that has been punishing short sellers. This company sells high-end workout clothing and other fitness related items. Many traders shorted this stock, assuming that yoga pants were a frivolous expense. Despite this, the stock has continued to rise as LULU grows EPS and revenues. The stock cleared a long base in September and after further consolidation it really broke out in November. It has been consolidating in a flag pattern between $65 and $75 per share and has refused to give up much ground during any weakness. Traders should watch the top of the flag near $75 for a continuation move higher.

LULU lululemon athletica stock chart January 14, 2011

Under Armour (NYSE:UA) is another apparel stock that has been punishing short sellers. UA has been steadily rising for months, pausing for brief consolidations along the way. It is currently attempting to clear its most recent consolidation; a move above the trendline marking the top of the base could lead to new highs. (For more, see The Anatomy Of Trading Breakouts.)

UA Under Armour Inc stock chart January 14, 2011

G-III Apparel Group (Nasdaq:GIII ) has an even higher short interest ratio than LULU and UA. This is interesting as GIII is actually trading right near all-time highs. It cleared a base in December and has been trading in a tight range just above this base between $34 and $36 per share. Traders should keep an eye on the all-time high point of $36.85, as a move above this level would put every long holder at a profit.

GIII G-III Apparel group stock chart January 14, 2011

Perry Ellis International (Nasdaq:PERY) is another apparel stock that has been acting quite well. It also cleared a base in November and has been holding above that base, although it hasn't really followed through. However, over the past few days it has started to perk up and just cleared its December high, which could signal a resumption of the November breakout.

PERY Perry Ellis Intl Stock Chart January 14, 2011

Bottom Line
As traders it is most important to realize that price is what pays, not opinion. Despite what may seem illogical at times, the markets are comprised of millions of individuals pricing in all sorts of different scenarios in order to arrive at a fair price for an issue. As such, it can be hard to objectively judge what a stock is worth because it is worth whatever someone is willing to pay for it. As such, traders should always keep an open mind as they attempt to interpret market action. While it may not make sense that some apparel stocks remain strong at a time when many consumers are under pressure, the fact is that the four stocks above have been enjoying a great trend higher and remain poised for more upside. (For more, see 5 Strong Stocks Poised For A Breakout.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

comments powered by Disqus
Trading Center