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

Turning Point Technical Analysis: Try A UA/XLY Pair Trade - Under Armour, Inc. NYSE:UA, SPDR Consumer Discretionary Select Sector Fund ETF ETF:XLY

Turning Point Analytics believes Under Armour Inc's UA 2.07% 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 0.19%, PVH Corp PVH 0.34%, Columbia Sportswear Company COLM 0.32%, Hanesbrands Inc. HBI 0.44% and VF Corp VFC 0.25%.

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 0.42%. 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, Inc. AMZN 0.18% and Home Depot Inc HD 0.07%.

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