Some retailers are making a killing right now, while others are struggling with supply-chain issues, Cramer said. Gap is in the latter category.
The business came into the quarter with strong demand, Syngal said. However, some unexpected supply constraints came up, particularly with Gap's top-sourcing country, Vietnam.
It's better to have a supply problem than a demand problem, Syngal reasoned, but the retailer is doing its best to increase supply so it can compete in the holiday season.
On Tuesday, the company cut its full-year earnings guidance and reported third-quarter results that fell short of expectations. The shares dropped more than 16% in late trading.
Let's check out the charts and indicators again. In our Aug. 23 review we wrote that "GPS has weakened since May and that correction does not appear over." We included a weekly Point and Figure chart with a $21 downside price target.
In the daily bar chart of GPS, below, we can see that prices have weakened since our August analysis and only made a weak bounce into November. Prices look like they will gap lower Wednesday in early trading. GPS is trading below the declining 50-day moving average line and below the cresting 200-day line.
The On-Balance-Volume (OBV) line has been weak since May and is likely to soon make a new low for the move down. The Moving Average Convergence Divergence (MACD) oscillator is weak and turning towards a new sell signal.
In the weekly Japanese candlestick chart of GPS, below, we see a bearish setup. Prices are in a downtrend below the 40-week moving average line. I do not see a bottom reversal pattern in October.
The weekly OBV line is bearish and the MACD oscillator may have a temporary cover shorts buy signal.
In this daily Point and Figure chart of GPS, below, we can see that prices reached a downside price target but a further decline is likely based on early trading Wednesday.
In this weekly Point and Figure chart of GSP, below, we see an upside price target but a trade at $21.68 will turn the chart bearish.
Bottom-line strategy: I would not avoid the store if you find this apparel appealing but I would continue to avoid the long side of the stock. A base is needed before the stock becomes attractive.