AEO Gives us 100% Options Trade
by Mike Paulenoff
August 22, 2014 • 12:00 AM EDT
On Tuesday we added a long model portfolio position in the American Eagle Outfitters (AEO) September 11.00 calls, as our pattern work argued for a positive response to the next morning's earnings release.
We wrote: "The technical set-up as well as a 29% Street short position suggest that it will not take much to light a fuse under AEO."
The company reported better-than-expected earnings, and the stock ran up 12% the next session, giving us a more than 100% gain on our options.
The first chart below shows what AEO did after our call.
The second chart shows the bigger picture of the stock. What our technicals had told us was that the stock had been carving out a base-like accumulation pattern since mid-April, and had absorbed some intense downside volume capitulation spikes.
In addition, the Apr-Aug 2014 basing action had been unfolding above the prior major low at 10.00 back in September 2011, increasing the potential for a secondary double-bottom low.
We noted on Wednesday, with the stock trading at 12.49, to expect additional strength that projects into the 13.60/90 target zone.
The stock closed Friday at 13.46.
Mike Paulenoff is the author of MPTrader.com, a real-time diary of his technical analysis & trade alerts on
ETFs for precious metals, energy, currencies, and an array of equity indices and sectors, including international
markets, plus key ETF component stocks in sectors like technology, mining, and banking.
Sign up for a Free 7-day Trial!
More Top Calls From Mike
Last October 21, 2024, I alerted MPTrader members to a Goldman Sachs upgrade of optical products retailer Warby Parker (WRBY) to Buy from Neutral. Goldman attached an 18.00 target price to the stock. At the time of my post to members, WRBY was trading at 17.55 in reaction to the GS upgrade, up 6% from the prior close, and just 2.5% from Goldman's 12-month target price.
On February 26, 2025, just 30 minutes before NVDA (Nvidia Corp) was scheduled to release its highly anticipated and potentially consequential Quarterly Earnings Report, I reiterated my most recent analysis uploaded before the opening bell. This is what I posted to the MPTrader Discussion Room:Technically, my Big Picture setup work on NVDA argues that the 2/03/25 low represented the END of a major correction that originated at NVDA's "orthodox" price high of 152.89 on 11/21/24-- the session following the company's November 20, 2024 Earnings report.
Before the market opening on February 4, 2025, hours after Palantir Technologies (PLTR) reported stellar Earnings, this is what I discussed with MPTrader members:In reaction to Earnings, PLTR has sustained strength above my "outlier" target zone of 96 to 100, which requires new upside pattern parameters. My optimal price path from atop the post-Earnings, 25% upmove points to an immediate objective of 105-08, followed by a contained pullback into the 95 area, ahead of a thrust toward 115-118 thereafter... Last is 103.50...
On January 6, 2025, this is what I discussed with MPTrader members about the Chinese equity names--Alibaba (BABA) in particular:BABA-- For anyone who wants an outlier contrarian play for the first two-quarters of the Trump Agenda, let's consider BABA. Purely from a technical perspective, I can make a compelling technical argument that the 12/20/24 low at 81.5 ended the larger correction off of the Oct 2024 upleg (from 71.80) high at 121.06. To confirm the low, any weakness must hold support at 81.50-83.
Never a dull moment since January 20, 2025! This weekend, POTUS imposed 25% tariffs on Mexico and Canada, and 10% on China, which go into effect on Tuesday. From an initial market perspective, tariff trade war fears have triggered a risk-off reaction from Bitcoin-- the only highly liquid weekend market that can give us insight into what to expect for Sunday evening and Monday morning trading.