The Gap Inc. (NYSE: GPS)

The Gap, Inc. operates as an apparel retail company. It offers apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, Athleta, and Intermix brands. The company operates through two segments, Stores and Direct. Its products include maternity apparel; loungewear, sleepwear, intimates, and active apparel for women; and handbags, shoes, jewelry, personal care products, and eyewear for men and women; women’s apparel, footwear, and accessories for sports and fitness activities, including crossover apparel and casualwear; and luxury and contemporary apparel and accessories. The company also has franchise agreements with unaffiliated franchisees to operate stores in Asia, Australia, Eastern Europe, Latin America, the Middle East, and Africa under the Gap and Banana Republic brands. In addition, it sells products that are designed and manufactured by branded third parties under the Piperlime and Intermix brands, as well as collections in partnership with designers and other third-party merchandise under the Gap brand.

To review Gap’s stock, please take a look at the 1-year chart of GPS (The Gap, Inc) below with my added notations:

1-year chart of GPS (The Gap, Inc)

GPS has been on a nice rally since December, but has since paused in a sideways trading range. For the last (2) months the stock has formed a $42.50 resistance (navy) and a $40 support (blue). At some point the stock will have to either break its support or break up through its resistance. A break above $42.50 would also be a new 52-week high.

The Tale of the Tape: GPS has created two levels to watch: $40 and $42.50. The possible long positions on the stock would be either on a pullback to $40, or on a breakout above $42.50. The ideal short opportunity would be on a break below $40.

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Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT