Foot Locker, Inc. (FL) dropped a shoe this year. Maybe more than a shoe, as the shares skidded downward from over $75 to below $35 in four short months. We looked at the decline recently, and were cautious about the price action saying, "Low prices can be tempting, but this is not the store, rather the stock market. Cheap stocks can get cheaper. I would continue to avoid the long side of FL."
Has anything changed on the charts in the past two weeks? Let's check the charts and indicators one more time.
In this updated daily bar chart of FL, below, we can see that prices nearly reached $31.50 and then bounced back a bit in recent sessions. Is it safe to go back in the water? Let's check further. Looking back at the first downside price gap (or price void) in May we can see that the volume of trading was heavier than usual, but see the huge amount of volume this month? More than 30 million shares and volume was heavy for a few days. This kind of volume after a 50% decline with a gap could be an exhaustion gap. Exhaustion gaps happen near the end of major moves. Near the end of a major decline you sometimes see people who were hanging on and on to positions finally dump those shares in what old-time traders called "throwing in the towel." This may or may not have anything to do with boxing.
This bounce in prices gives aggressive traders an opportunity. A decline below $31.50 would be a new low for the move down and would refresh the downtrend. If one went long FL at current levels you could risk below $31.50, or a new low for the move down. A new low tells you that the trend is still down and this is where you want to exit.
There are some other clues we can glean from this chart. The daily On-Balance-Volume (OBV) line has not made a new low for the move down. It has yet to turn up but for now not making a new low is a start.
The 12-day momentum study in the lower panel, above, shows a bullish divergence with equal momentum lows in May and August compared to lower lows in price. The August decline was as weak as the May decline. If prices for FL made a new low we would probably not see momentum readings this low.
In this five-year weekly bar chart of FL, below,, we can see the price action back to the fourth quarter of 2012. The big decline this year does not have the price gaps seen on the daily chart. Prices are below the declining 40-week moving average line. There is some old potential support in the $35-$31 area from late 2012 and most of 2013. The 12-week momentum study in the lower panel shows that momentum improved in August versus July.
In this Point and Figure chart of FL, below, we can see that chart support is not nearby; however, a rally to $38.80 is all that is needed to produce a new column of Xs.
Bottom line: We can say that the decline in FL is overdone, that prices are oversold and so forth but a recommendation to buy should depend on risk. Aggressive traders now have a risk point of a new low for the move down. On the upside there is no resistance until the $45 area.