American Eagle Outfitters (AEO) could be ready to turn

I received the following question via email, “I was just wondering if you would give me a reading on the potential for AEO. To me, it looks to be at a bottom and may be a good candidate for some calls. What do you think?“

Personally, I haven’t had a lot of success with retail stocks.  I don’t know why, but I don’t seem to be able to spot the clothing trends very well.  That’s going to make watching AEO pretty interesting.  AEO’s chart is fairly ugly with a slide that has taken it down to its lows from back in late August 2006.  Interestingly though, that point back nearly 10 months ago was where AEO gapped up at the open and started a five month bull run.  It could be that this recent low point of 25.27 could be another turning point for AEO.  I see two potential ceilings for AEO and won’t trade on it until I see how it reacts with its next meeting with those lines.  The longer trend line is around 28.20 now and the second (shorter) trend ine is pretty much dead on the high of today’s range around 26.00.

Here are some of the fundamentals from Yahoo! Finance.  I like finding companies with a PEG ratio below 1.00, like this one.

With all of that said, Forbes.com has AEO as its stock of the week and paints a nice picture for the future.  I think the email was on to something with the idea to buy calls on it.  The risk is limited to what you put into it and the upside could be really good.  I’m waiting to see it close above 26 first and then will decide if I want to wait for the second trend line to be broken before I get in.

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