Get Fitch

04/14/05 09:48:34 AM

by David Penn

Following the sensationalist success of "When Animals Attack," how long will it be before we are entertained by CNBC's new series, "When CFOs Resign"?

Security: ANF
Position: N/A

A lot of money managers have a rule when it comes to companies and their stock in the post-bubble era: accounting irregularities = sell.

Call it "rushing to judgment." Call it "guilt by innuendo." Call it what you will, but more and more money managers are realizing that if they sell as soon as there is the slightest whiff of some sort of unexplained accounting problem, then they will likely save themselves and their clients a great deal of money and heartache.

Figure 1: A falling stochastic in mid-April and a reversal in the moving average convergence/divergence histogram (MACDH) to the downside establish a negative divergence that should limit any upside in shares of Abercrombie and Fitch in the near term.

Graphic provided by: Prophet Financial, Inc.

It now seems as if Abercrombie and Fitch--retailers of high-end casual clothing geared toward young adults and publishers of a risque clothing catalog that scandalized those inclined to be scandalized with photographs that were referred to by more than one critic as "soft-core porn"--will have to run the "Yes-our-CFO-is-leaving-abruptly-please-don't-sell-our-stock" gauntlet.

The article I read at CFO.com suggested that the resignation was unrelated to a recent settlement that Abercrombie and Fitch made in a shareholder litigation case. But as far as the article was concerned, the resignation was intimately related with the selling of ANF on Wednesday. ("Nonetheless, jittery investors knocked down Abercrombie's share price by about 2 percent ...") (See Figure 1.)

Mebbe so, mebbe so, as Andrew "Squiggy" Squiggman of the classic TV show "Laverne and Shirley" used to say. But the fact of the matter is that investors had been growing somewhat less enthusiastic for ANF shares in recent days, as the flattening-to-lower 7,10 stochastic in April suggests. What Wednesday's selling did do, however, was establish a negative stochastic divergence that hints that prices for ANF will be similarly flattening-to-lower going forward.

David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine, Working-Money.com, and Traders.com Advantage.

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