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RETRACEMENT


Abercrombie & Fitch Firms At Key Retracement

10/20/05 07:36:18 AM
by Arthur Hill

Abercrombie & Fitch is stabilizing at a key retracement point just as a bullish candlestick reversal takes shape.

Security:   ANF
Position:   Hold

Abercrombie & Fitch (ANF) was hit hard the last few months with a sharp decline from the mid-70s to the mid-40s. As devastating as the decline seems, it could still be a normal retracement or correction. After a big advance, stocks often retrace 38-62% with a corrective decline. ANF retraced 62% and bounced at 45. This is at the upper end of the retracement target, but still within the realm of normality. In addition, the support area around 45 is confirmed by the November-December consolidation. See Figure 1.

FIGURE 1: ANF RETRACEMENT. Abercrombie & Fitch retraced 62% and bounced at 45. This is at the upper end of the retracement target, but still within the realm of normality.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
Even though there is evidence of support around 45, some sort of bullish signal is required for a reversal. For that, I will focus on candlesticks and the early October high (Figure 2). The first bounce off support at 45 is positive, but the stock pulled back over the last two weeks. Stemming the decline is the first step to a bullish reversal, and the stock needs to hold 45 or form a higher low.

FIGURE 2: IS A HIGHER LOW IN SIGHT?It may be. A piercing pattern over the last two days indicates that a higher low may indeed form.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
A piercing pattern over the last two days indicates that a higher low may indeed form. These are bullish candlestick reversals that require confirmation. The open is below the prior close and the close is above the midpoint of the prior black candlestick. Hence, the white candlestick pierces the black candlestick. This candlestick shows that the bulls recovered after a weak open. Further strength with a close above 50 would confirm the piercing pattern, and further strength above 53 would forge a new reaction high. As long as 50 holds, there is only evidence of a consolidation and support, not any actual buying pressure.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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E-mail address: arthurh@tdtrader.com

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