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The Globe and Mail

Aeropostale Inc. stuck in a steep nosedive

A woman walks past an Aeropostale store in Times Square in New York on July 27.


On Friday July 11, 2014, Nate asked for an analysis of Aeropostale Inc. in addition to his request for an examination of CYS Investments Inc. I have to assume that Nate is bottom fishing the shares of ARO which can prove to be interesting cases worth examining.

An investigation of the charts will help identify if ARO is in a position to reverse the downtrend.

The three-year chart tells the tale of a wounded beast that is under tremendous pressure. The teen market the company has served since 1973 has migrated to other retailers offering different styles that better appeal to the fast-changing tastes of these consumers. The research conducted indicates that management isn't moving fast enough in response to declining sales which has some major shareholders turning up the heat for a resolution.

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The dominant patterns on the chart are an established downtrend line and a series of lower highs and lower lows. When the shares failed to hold support near $13.00 in 2013 it set the stage for an aggressive retreat to just over $3.00 by mid-2014.

The six-month chart highlights the resistance that has formed along the 50-day moving average. The RSI signalled weakness in February which was confirmed by the MACD in March as the stock gapped down below $6.00. There is very little in the charts that suggest that this would be a good time to risk capital on these shares.

The next flex point for ARO will come on the release of second-quarter 2014 results. The evidence at hand doesn't suggest that a reversal of the downtrend is imminent. I would advise caution in approaching these shares given the established downtrend that goes back to 2011 and the resistance along the 50-day moving average over the last six-months. Just as a further note the all-time low of $1.67 was established in 2002. Even from these levels it represents a significant haircut.

Make it a profitable day and happy capitalism!

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