Gildan Activewear (GIL) a Good Example of My Setups

02/23/2010 12:01 am EST


Part of my weekly trading preparation involves reviewing where the indexes are in relation to nearby support and resistance levels and forming at least an initial bias for the beginning of the trading week. Traders should always plan for multiple scenarios, as the worst thing you can do is try to scramble and chase a trading opportunity in the heat of battle.

The markets have staged a decent bounce off the early-February lows, and most actually reclaimed their 50-day moving averages. There are also several individual stocks acting well, trading laterally and building a base as the markets corrected. While the recent action has certainly been constructive, traders should not get too complacent here. The markets transitioned to a range-bound environment with the sharp drop in January and the high volume reversal a month later. While they have held support thus far, the markets are back in an area that could have excess supply. Because of this, my plan is to manage my existing positions and simply watch to see what happens as the indexes test these resistance levels.

There are plenty of stocks setting up, but if the markets do come under pressure over the next week or two, it will take down many stocks with it. However, if the markets trade sideways here on light volume, it could set up for a good opportunity in a week or two for continued strength. I have been adding stocks to both a long list and a short list in order to be ready when the opportunity presents itself, regardless of which direction the next move takes. One of the stocks I added to my long watch list is Gildan Activewear Inc. (GIL).

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GIL broke out of a base in December on huge volume, and rallied into the $25 range. It pulled back to the original breakout area over the next two months and held support near its 50-day moving average. It bounced off this level and retested the $25 range fairly quickly. Volume increased on this move and showed buyers starting to get more aggressive.

GIL is currently drifting under the important level of $25 on decreasing volume. This is constructive action as sellers are not getting aggressive or showing any urgency. In my opinion, the ideal scenario here would be for GIL to drift back towards its 20- and 50-day moving averages as the markets consolidate. However, the break of $25 is another possibility depending on how the markets trade over the next week or two. While the low $21's would be the major support level here, I would probably not hold or trade this stock with a close under its 50-day moving average.

By Joey Fundora, trader and blogger, Downtowntrader Blog

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