(Denim) Tops and Bottoms of the SP500

A company we have loved for a long time has been VF Corporation, VFC. It has everything going for it (except a memorable name) as it is very well run, pays a dividend and has tens of millions of customers around the world. As you can see in the chart below its share price has risen more than 450% over the past 4 ½ years. In the bottom pane, which is a performance ratio against the SP500, you can see how it has outperformed the US broad market index by more than 120% over the same time period. The funny thing is when I ask most people, they say they have never heard of the company. The common response when I show them the chart is “it must be a high growth technology or biotech company”.  As it turns out it is neither, here is a quick summary of what they do and some of their more notable brands, some of which you likely have heard of (and quite possibly own) …

The company offers outdoor apparel, footwear and equipment, sports and adventure footwear and apparel, handbags, luggage, backpacks, accessories, merino wool socks, women’s activewear, packs, and travel accessories under the The North Face, Vans, Timberland, Kipling, Napapijri, Jansport, Reef, Smartwool, Eastpak, lucy, and Eagle Creek brands. It also provides denim and casual bottoms, and tops under the Wrangler, Lee, Lee Casuals, Riders, Rustler, and Timber Creek by Wrangler brands

The chart is a thing of beauty as the stock’s price has not violated the blue uptrend line since it started in 2010.  Each time it has tested that the line (red arrows) it has bounced nicely higher consistently acting as support.  Seeing this happen again last week we put this on the radar to add to our model portfolio.

Jumping to the daily chart and using a shorter timeframe in an attempt to optimize our entry, we see price was in a (blue) corrective down channel for almost a month, after peaking in the middle of January.  On Feb 9th we got an ideal bullish hammer reversal candle that formed after bouncing exactly off the red horizontal support. While that was a great early buy signal, because we are investor on a longer timeframe, we want to see some form of confirmation before committing client’s investment dollars. 3 days later that confirmation triggered as price moved out of the (blue) downtrend channel. Notice how, at the same time, the RSI crossed above its moving average while the MACD bottomed and crossed its signal line. That was more than enough as we quickly took action buying before the end of the day close. You can see what happened next on Friday (the 13th - the last candle on the chart), priced gapped and closed up 6%.

With price now approaching all-time highs, I do expect it to take at least a short term breather for its eventual push higher. As long as the stock market wants to go higher and the fact that there is no resistance above $77, where this finally tops out is anyone’s guess but my first upside target is $81 followed by $85. While breakouts are not all this clean and play out this ideally, hopefully you can see the value Technical Analysis can bring to improving returns.