Abercrombie & Fitch Co. (ANF) shares fell about 20% in early trading amid reports that buyout talks have stalled. On May 10, the company announced that it was in preliminary discussions with several parties regarding a potential transaction. These hopes faded a month later after The Wall Street Journal’s Dana Mattiolo tweeted that deal talks have stalled with potential bidders – a development that the company quickly confirmed this morning.
“After a comprehensive review of all relevant factors, with the assistance of our financial advisor, the A&F Board of Directors determined that the best path to enhance value for stockholders is the rigorous execution of our business plan,” said Executive Chairman Arthur Martinez ahead of a Wall Street Journal article discussing the stall in buyout talks. “We believe in the prospects for our business and the opportunities for our brand.” (See also: Abercrombie Ends Talks With Potential Buyers, Shares Slide.)
From a technical standpoint, the stock broke down below trendline and S2 support at $10.75 to fresh lows that have not been seen in years. The relative strength index (RSI) fell to an oversold 23.30, but the moving average convergence divergence (MACD) witnessed an acceleration of its bearish trend. These dynamics suggest that the stock could experience a relief rally, but it could be nothing more than a dead cat bounce.
Traders should watch for some consolidation below S2 resistance levels before a potential move to fresh lows. If the stock rebounds back above these resistance levels, however, traders could watch for a rally back to the 50- and 200-day moving averages that lie near the pivot point at $12.77. The long-term trend will depend on whether management is able to effectively execute on its plans to grow organically without a buyout occurring. (For additional reading, see: How Amazon’s New Service May Redefine Apparel Retail.)
Charts courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.