American Eagle Outfitters (NYSE: AEO)

American Eagle Outfitters, Inc. operates as a retailer of apparel and accessories in the United States and internationally. The company’s stores offers denims, pants, shorts, 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 women the aerie brand name. As of December 2, 2015, it operated 1,000 stores in the United States, Canada, Mexico, China, Hong Kong, and the United Kingdom. The company also sells its products through its e-commerce Websites ae.com and aerie.com.

Take a look at the 1-year chart of American (NYSE: AEO) below with the added notations:

1-year chart of American Eagle Outfitters (NYSE: AEO)

AEO has been trending lower, overall, for the past 6 months, but over the most recent 3 months the $15 price level (green) has become important to the stock. Not only was the $15 level a support area back in December, but that level has also been resistance in both January and February. Now that AEO has broken back above $15, that level should provide support for a rally towards $16.50 (red).

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The Tale of the Tape: AEO has a key level at $15. A trader could enter a long position on a pullback to $15 with a stop placed under the level. However, if traders are bearish on the stock, a short trade could be made instead on a break back below $15.

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