GPS Looking Bullish on Earnings

The Gap, Inc. (GPS) is a U.S. retail operator that sells apparel and accessories for men, women and children directly to consumers. Besides just operating its Gap retail stores, the company’s corporate umbrella also includes well-known retail apparel chains such as Banana Republic, Old Navy, and several lesser recognized brands as well. At the time of this post (10:30AM CST) GPS is currently trading at 39.95, up around 0.40% on the day. The stock has traded relatively tightly over the course of the past year, in a 52 week range of 35.46-46.85. The highs for the stock were printed in early September, followed by a sharp decline down to the lows in early to mid October on an unfavorable investor reaction to news that current Growth, Innovation and Digital president Art Peck, would become the company’s new Chief Executive Officer in February 2015. The stock has since found support and has traded up strongly over the past month after digesting this news. The Gap, Inc. is set to report third quarter earnings today, 11/20/2014 after the closing bell.

GPS has traded neutrally to relatively bullish historically following the last eight quarters of earnings reports, posting a positive day on 5 out of 8 sessions immediately following the EPS release. GPS has not been a very volatile post earnings mover over this time period, posting an average historical move of just 1.6%. Considering the historical average over the past two years, the options market is currently projecting an outsized move on third quarter earnings of around 3.75% or a $1.50 move in the underlying stock. GPS remains very strong technically, trading into the Ichimoku Cloud and remaining above all relevant moving averages. As the near term bullish trend appears to remain firmly intact, I will be looking to initiate a long position into the earnings release this afternoon.