Turning Point Technical Analysis: Try A UA/XLY Pair Trade

Turning Point Analytics believes Under Armour Inc's UA tough year is about to get even worse. Under Armour’s stock is down 15.6 percent in the past year, but Turning Point believes the stock’s technical trend remains downward.

After a 14 percent rally off of support in the $35-37 range, Under Armour is now once again up against its long-term falling resistance line.

Turning Point believes Under Armour’s support is now vulnerable to a breakdown. The firm has placed a target price of $32.52 on Under Armour.

The firm points out that Under Armour’s weakness is shared by a number of other apparel stocks and points out similar downward trading patterns in Nike Inc NKE, PVH Corp PVH, Columbia Sportswear Company COLM, Hanesbrands Inc. HBI and VF Corp VFC.

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For traders that would prefer to hedge their bearish bets on Under Armour, Turning Point recommends pairing an Under Armour short with a long bet on the Consumer Discretionary SPDR (ETF) XLY. The chart below shows the UA/XLY ratio.

“Note that the rally since early August puts UA/XLY right at the 11-month downtrend line = resistance,” the firm notes.

Turning Point explains that the XLY should benefit from large holdings of stocks with bullish technical trends, such as Amazon.com, Inc. AMZN and Home Depot Inc HD.