Ascena Retail Group Inc ASNA shares are trading lower by $2.40 (28 percent) at $5.72 in Tuesday's session. The catalyst for the sharp decline is a Q4 miss of $0.08. The company also guided lower for FY 2017 EPS and sales.
Exerting additional selling pressure on the issue is a pair of downgrades from Oppenheimer and RBC Capital.
What is particularly concerning about Tuesday's price action is that despite a sharply lower open ($6.07 vs. $8.12), it was only able to muster a $0.07 bounce to $6.14, before falling under $6 for the first time since April 2009, when it bottomed at $5.89.
On many occasions, when an issue has such a precipitous drop (25 percent) overnight, one of three factors can ignite a rally. First of all, traders or funds that are short the issue are eager to lock in the windfall profits and begin buying from the opening bell.
In the absence of a short-covering rally, one or more institutions that are looking to go long the issue pounce on the discount from Monday's close and begin to accumulate the issue.
Finally, aggressive contrarian shorter-term traders fade the big decline hoping to ignite a short-covering rally or to force institutions wanting to go long the issue to enter at higher prices. If these traders can identify a large buyer, they can easily up their bids and nudge the issue in their direction.
Since none of these three scenarios have come to fruition, the issue has continued to deteriorate and make new lows for the session. Based on the monthly charts, the next major level of support may not come in until the pair of monthly lows from February 2009 ($4.22) and March 2009 ($4.42).
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