Breakout
Check Out The 4th of July Fireworks For This…
We hope this post finds our Canadian and American readers enjoying their Independence Day weekend. It’s important to step back and remember the freedoms we often take for granted. Not everyone is so fortunate. May we always cherish the sacrifices made (and be willing to do the same) to ensure a free society. Because of the holiday, this update will be as brief as possible. We’ve found a fashionable stock on the verge of a firework-like breakout: VFCorp (ticker: VFC). Let’s get down to business.
For many years, VFCorp (the parent company of Lee, The North Face, Jansport, Vans, you get the point) was a leader of markets. More specifically, from late 2008 thru mid-2015, VFC outpaced the S&P 500 (including dividends) 4-to-1*. Over those 7 years, VFC gained 230% while the S&P 500 gained only 50%. Since July 2015, however, VFCorp stock price has been recording lower highs and lower lows, the very essence of a downtrend. But last week confirmed the possibility this downtrend is over and outperformance is back in a big way for this stock.
Here’s the weekly chart of VFC:
It’s easy to see the drawdown from July 2015 through the February 2017 bottom, which filled the price gap from October 2013. The February 2017 low was also the 38.2% Fibonacci retracement of the entire move from the November 2008 low to July 2015 high. Price discovery is not random guys. We see price work like this over and over again across any liquid investment vehicle with a tremendous amount of memory from the past.
We can also clearly the see the breakout on an absolute and relative (to the S&P 500) basis. Not only that, but this momentum breakout is coinciding with a breakout from a horizontally configured inverse head and shoulders pattern. This is a bullish set-up with a confluence of characteristics supporting higher prices for VFC. Specifically, this set-up is targeting $66, +14.5% from here. Let’s get a little more tactical with a daily chart of VFC:
Whenever we enter a trade, priority number one is risk management. We need to know when we’re on the wrong side of the trade. For us, it makes sense to own VFC above $55.75. Below that, and we’ll let the market have it. This particular set-up has a reward to risk ratio of almost 5 to 1. The reward is asymmetrically skewed in our favor. We like that.
To conclude, the weight-of-evidence suggests higher prices for VFC. The simple yet prudent game plan is to own this fashionable stock above $55.75. Trade at your own risk.
*For those who are wondering what the respective returns were from the March 2009 low of the S&P 500, they were 592% (VFC) and 225% (S&P 500)
As always, you can get real-time updates and commentary about this development and many more opportunities here: @360Research
By the way, we created this free tool for you, The Ultimate ETF Cheat Sheet. It’s an easy-to-use ETF resource guide. We think you’ll like it.
Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in this blog. Please see our Disclosure page for full disclaimer.