Aéropostale, Inc., is a mall-based specialty retailer of casual apparel and accessories. The Company designs, markets and sells its own brand of merchandise principally targeting 11 to 18 year-old young women and young men. (Source: Bigcharts)

For this long-term play remove yourself from any reactionary opinions in regards to the company, industry, season, line of clothing, or even the targeted consumer age and let’s focus on the charts. Charts do not lie and give a great history of what this stock has been through. From the chart below, you will notice a bullish head and shoulders pattern with the tip of the head being represented by the huge drop off in price between July-October of 2005.

The shoulder line had been developing since early 2005. This is BIG because this little gem just broke out from a long-term shoulder channel which has ranged between $24 and just under $34/share. Breakout from a long-term consolidation period means the real move is coming soon and that it will be huge. The upper trend line is drawn for you to demonstrate how Aeropostale has recently broken through major support.

So, how high will it fly?

Well, in order to get an indication of where future prices are going you should look to the strength of the previous move before consolidation occurred. The first wave occurred when the stock was trading near $6 and ultimately needed to pullback from a high established near $33. Take the difference between the top and bottom and you’ll start to get an idea of what the next move will look like. Ok, so (33-6=27)…meaning that a breakout above $33 should carry the stock to approximately (33+27=60). $60.00 is your new price target. Who wouldn’t want to risk 5-10% in their stop loss to potentially gain 81.8% in 12-18 month’s time? Sign me up!

Also, the MACD and DMI signal buy on a four-year monthly chart (monthly option only able to be created on Bigcharts). As we branch out into longer periods of time it is necessary to plot charts on a monthly basis in order to get clear signals. Longer time horizons also reflect a heightened sense of conviction and are more reliable in such analysis.

Source: Bigcharts

Our Recommendation: Buy shares at or near $33.93. Place a 5-10% stop loss based on your own risk tolerance and hold shares for at least one year.

Note: This investment play will not be added to the Jutia Portfolio due to the longer-term (>1 year) outlook.