We checked the charts and indicators for American Eagle Outfitters Inc. (AEO) in September when the stock was upgraded by our Quant Ratings service. At that time we wrote, "A quantitative upgrade and improving technical studies make the long side of AEO more appealing. A decline below $12.50 would make the chart less attractive."
Over the past three months or so AEO has rallied back to retest its 2016 peak. The key question now is whether these highs can be overcome. Let's check the latest charts and indicators for clues.
In this daily bar chart of AEO, below, we can see that prices turned up in a more sustained way in early November. AEO closed above both the 50-day average and the 200-day average line and both averages turned higher. The 50-day line even closed above the 200-day line for a bullish golden cross. Prices are still above both average but a pullback this month has brought prices down toward the 50-day line.
The On-Balance-Volume (OBV) line has rolled over and suggests that sellers of AEO have become more aggressive. With sellers of AEO signaling their bias a retest of the 50-day average line could be seen in the weeks ahead. The 12-day momentum study in the lower panel shows that price momentum has now turned negative.
In this weekly chart of AEO, below, we can see that prices are bumping up against the highs seen in late 2016. Prices are above the rising 40-week moving average line. The weekly OBV line has inched up a little in recent months and so far do not suggest aggressive buying and accumulation. With the OBV line so far below its 2016 peak I wonder if AEO can move much higher. The weekly Moving Average Convergence Divergence (MACD) oscillator has begun to narrow and could generate a take profits sell signal in the weeks ahead.
In this Point and Figure chart of AEO, below, we can see that an entry at $19.50 on this chart would be a new high. I find it interesting that a price target of only $20.50 is projected at this time.
Bottom line: AEO has rallied nicely in recent months and while prices are close to breaking their 2016 peaks I am not sure it can be achieved. Short-term traders should consider protecting their long positions.