Brocker.Org: Abercrombie Surges After Takeover Talk

0
28

Beaten down retailer Abercrombie & Fitch, Co. (ANF) got a much-needed boost this week, lifting more than 12% after Reuters reported that potential suitors might have opened preliminary merger discussions. These “expressions of interest” could forestall a steeper decline, following a brutal downtrend that’s dropped the formerly trendsetting chain more than 80% since 2011.

War-weary shareholders shouldn’t expect a deal to attract a significant premium, given the ongoing exodus out of brick and mortar retailers into e-commerce. Also, online portals now influence the fickle tastes of the chain’s young demographic, making it unlikely that a sale or merger will encourage a second look, even after their brands are repackaged by new ownership.

ANF Long-Term Chart (1998–2017)

The company came public near $12 in October 1996, after adjustment for a 1999 two for one stock split, and posted a swing low at $7.38 just four months later. It then entered a powerful uptrend that continued into 1999, lifting the stock just above $50, ahead of a decline that bottomed out at $8.00 in May 2000. Price action held up well into 2001 despite the Dot.com bear market, yielding a fresh recovery wave that stalled less than three points below the prior high.

Volatile sideways action then took control, lasting into a 2004 breakout that attracted healthy momentum buying interest. The rally wave slowed to a crawl in 2006 and fizzled out in 2007, yielding an all-time high at $85.77. The stock built a rounded topping pattern into 2008 and broke down, accelerating into a vertical decline during the fourth quarter economic collapse.

Selling pressure eased in the low teens at the end of 2008, giving way to a 2009 recovery wave that failed within a few points of the 2007 high in the summer of 2011. That peak marked the highest high so far in this bull market cycle, ahead of a multi-wave downtrend that broke the 2008 low at the end of 2016, dropping the retailer to a 16-year low within 50-cents of single digits.

Price action since 2012 has unfolded though a broad falling wedge pattern (red lines) that cut through major support in the mid-teens less than six months ago. Takeover rumors could trigger a test at that level, with decent odds for a short squeeze that reaches wedge resistance in upper teens. However, an actual bid is unlikely to reach that high, given the company’s deteriorating balance sheet.

ANF Short-Term Chart (2015-2017)

ANF

A selloff wave starting at $44 in the second half of 2014 found support in the mid-teens after the August 2015 mini flash crash, giving way to a bounce that posted a lower high in March 2016. It sold off to 2015 support in June 2016 and turned higher once again, stalling at 200-day EMA resistance in August. The subsequent decline completed the final stage of an inverted cup and handle pattern, ahead of a breakdown that continued to post lower lows into April 2017.

On Balance Volume (OBV) fell between 2013 and 2015 in a long term distribution wave and took off in healthy recovery that lasted until the middle of 2016. This two-sided action indicates aggressive bottom fishing that generated a large supply of bagholders, ahead of the breakdown into 2017. Their pain will make it harder for the stock to attract fresh buying power, given the old wisdom that once bitten, twice shy.

The Bottom Line

Abercrombie & Fitch lifted off a multi-decade low after reports that suitors were interested in a sale or merger. The bounce has already reached long-term resistance at the 200-day EMA, but news flow that adds to current speculation could break that level and set off a short squeeze into the upper teens.

LEAVE A REPLY

*