Chart of the Day: Urban Outfitters Facing Too Many Headwinds
Pinchas Cohen | Nov 22, 2022 00:13
Urban Outfitters (NASDAQ:URBN) is scheduled to release earnings after market close for the fiscal quarter ending October 2022. Analysts expect an EPS of $0.4181, half of last year's corresponding quarter. However, consensus sees revenues increasing year on year to $1.16 billion.
I have repeatedly criticized the trend of recommending a stock while Wall Street analysts lower earnings forecasts. Investment banks do not have a good track record of warning investors ahead of bear markets. So, will investors accumulate the stock if earnings surprise to the upside?
There is another external headwind to consider. URBN is listed on the Nasdaq Composite, which has lost 28.7% year to date (ytd), providing the worst return of all the major US gauges. Institutions buy and sell the components of that index as they peg portfolios against it, so Urban Outfitters has also been falling because of that.
In addition, Urban Outfitters is in the Consumer Discretionary sector—products consumers buy when they are confident about their income—which shed 35.25% of its value and is the worst-performing sector ytd. So, unless bulls, who keep betting that the US Federal Reserve will slow interest rate hikes are correct, Urban Outfitters will be dragged down with the sector, irrespective of its performance.
Look at the stock's supply and demand as it appears on the chart.
The stock's advance stopped at the rising channel top. Initially, I thought this resistance confirmed an Evening Star (red oval), but although the first candle, on Nov. 14, was green, it was lower than the preceding one. Therefore, I can't rely on the signal that indicates a bullish trap. Now, let's look at the big picture.
Here we see that the assumption of a supply line nears another expected bearish stronghold, the falling channel top since its June peak. The 200-week moving average (WMA) lends its resistance after the 50 WMA fell below it in June, triggering the ominous Death Cross on a weekly scale for the first time since September 2019, which preceded the 90% plunge in the following six months (though to be fair, it was during the coronavirus market selloff).
Also, on the daily chart, the 50 DMA is reaching a falling 200 daily moving average (DMA). If the price falls from here on out, so will the 50 DMA, away from the 200 DMA, a bearish indicator showing a general decline.
Trading Strategies/h2
Conservative traders should wait for the earnings release.
Moderate traders could sell into a rally, bringing the price nearer to resistance.
Aggressive traders could short.
Trading Sample
- Entry: $27.00
- Stop-Loss: $28.00
- Risk: $1.00
- Target: $21.00
- Reward: $6
- Risk-Reward Ratio: 1:6
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Disclaimer: The author does not have a position in any of the assets mentioned.
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