Foot Locker, Inc. operates as a retailer of athletic footwear and apparel. The company operates in two segments, Athletic Stores and Direct-to-Customers. The Athletic Stores segment retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, and SIX:02, as well as Runners Point, Sidestep, and Run2. As of February 1, 2014, it operated 3,473 primarily mall-based stores in the United States, Canada, Europe, Australia, and New Zealand. The Direct-to-Customers segment sell athletic footwear, apparel, equipment, team licensed products, private-label merchandise, and accessories through Internet Websites, catalogs, and mobile devices.
Take a look at the 1-year chart of Foot Locker (NYSE: FL) below with added notations:
After a steady 6-month rally, FL has been trading sideways since the September peak. During the sideways move the stock has formed a common pattern known as a rectangle. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern.
FL’s rectangle pattern has formed an $58 resistance (red) and a $52 support (blue). At some point the stock will have to break one of the two levels.
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The Tale of the Tape: FL is trading within a rectangle pattern. The possible long positions on the stock would be either on a pullback to $52 or on a breakout above $58. The ideal short opportunity would be on a break below $52.
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!
Christian Tharp, CMT
Follow me on Twitter: @cmtstockcoach