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Amid the earnings bombs being dropped this season there are still plenty of winners. Apparel makers such as Under Armour (NYSE: UA) grabbed the spotlight Thursday. After beating estimates, UA surged as much as 15% before settling back a bit.
But it was not alone in its sector, and several of its peers also soared. Most were already in decent shape, but some were not.
Typically, market inertia keeps strong stocks going and works against the weak. However, bull runs have to start somewhere, and PVH Corp. (NYSE: PVH), the former Phillips-Van Heusen, looks to be riding the coattails of its stronger peers into a technical breakout.
To be sure, this stock is still below its major moving averages and officially in decline. This alone keeps many investors and trend-following traders away, but that can work to the buyer's advantage. Many times we see stocks start to wake up from comatose conditions when few people are watching.
A strong sector goes a long way toward better fortunes for any stock within it. But just as the rising tide floats most boats, those boats cannot have holes in their hulls. The individual stock must be able to prove its worth with technical improvement of its own.
PVH does indeed show this. For starters, cumulative volume has been rising for the better part of two years. This suggests underlying demand, if not accumulation, as the stock itself floundered.
Next, momentum indicators such as the Relative Strength Index (RSI) show rising bottoms between June and July as prices sagged. This tells us that downside momentum this year is waning. Up days are becoming stronger and more frequent than down days, and that is bullish.
Finally, there has been a dearth of news about this company, and most of what I have seen has been negative. PVH appears on many lists of the worst performers of the past quarter and year to date. One website that follows "gurus" listed it as one of the widely held guru stocks at 52-week lows in what seemed to be a mocking manner.
In other words, subjective reads on sentiment are very bearish. It seems that nobody is ready to get back into this stock, and that makes it appealing from a contrarian point of view.
I am realistic: There is plenty of resistance overhead and many obstacles to overcome. But if this is indeed at least a temporary bottom for PVH, then I can see it closing its June gap within a few months' time.
Recommended Trade Setup:
-- Buy PVH at the market price
-- Set stop-loss at $109
-- Set initial price target at $130 for a potential 14% gain in eight weeks
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