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Periods of compression in stocks often lead to explosions. The issue, of course, is identifying and respecting in which direction the breakout comes, minding false breakouts and breakdowns alike. In theory, you could look at any chart and say, “Hey, it could go up, or it could go down!” With that in mind, I look for situations where there is a well-defined trade setup, with tangible factors I can point to as reasons why I am honing in on a particular chart.
At times, that setup can be a potentially enticing long AND short for the same stock. In the case of Under Armor, we have a stock that is either forming a textbook bear flag before it breaks lower with plenty of space to drop, offering a nice short setup. Alternatively, the stock could simply be basing at its 200 day moving average before it moves higher with room to run, offering longs a nice shot at playing the “free air” above. A move back below $72 would have me stalking the short, whereas a run up through $73.40 would have me thinking the bulls are seizing control.
Of course, the stock could simply morph into a broader consolidation pattern, rendering breakout plays futile here. That said, the consolidation in this stock and the nature of the free air both above and below the consolidation makes Under Armor a multi-threat setup candidate. Also note that earnings are on January 23rd.
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Two thumbs up for scarlet.