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

Turning Point Analytics believes Under Armour Inc's (NYSE: 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 (NYSE: NKE), PVH Corp (NYSE: PVH), Columbia Sportswear Company (NASDAQ: COLM), Hanesbrands Inc. (NYSE: HBI) and VF Corp (NYSE: VFC).

Related Link: Will The Fed Derail This Rally?

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) (NYSE: 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. (NASDAQ: AMZN) and Home Depot Inc (NYSE: HD).