American Eagle Outfitters (NYSE: AEO)

American Eagle Outfitters, Inc., together with its subsidiaries, operates as an apparel and accessories retailer in the United States and Canada. The company’s retail stores offer denims, sweaters, fleece, outerwear, graphic T-shirts, footwear, and accessories for 15 to 25-year old men and women under the American Eagle Outfitters brand name; and intimates and personal care products for girls under the aerie brand name. As of February 2, 2013, it operated 893 American Eagle Outfitters stores and 151 aerie stand-alone stores, as well as 49 franchised stores in 13 countries. The company also sells and ships merchandise through its e-commerce Websites, including ae.com and aerie.com to 81 countries worldwide.

To review American’s stock, please take a look at the 1-year chart of AEO (American Eagle Outfitters, Inc.) below with my added notations:

1-year chart of AEO (American Eagle Outfitters, Inc.)

Over the last (6) months AEO has traded mostly sideways, but over the most recent month the stock has formed a nice trend line of support (red). Always remember that any (2) points can start a trend line, but it’s the 3rd test and beyond that confirm its importance. So, AEO’s trend line is important to the stock since it has been tested on three different occasions. In addition, the stock has a key level at $14 (blue) that is currently acting as resistance.

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The Tale of the Tape: AEO has a trend line support and a $14 resistance. A long position could be entered on a break above $14, with a stop placed below that level. A short position could be entered if AEO were to break below $13.50, which would be a break of the trend line support.

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

Follow me on Twitter: @cmtstockcoach