It’s looking like it may be time to mind the Gap ($GPS). The well-known clothing brand had been struggling long before the pandemic began, as more fashionable rivals had taken their youth market H&M (€HM-B) and ZARA (tradable then as holding company Inditex: €ITX).
Since March, however, the brand has been in serious trouble.
Not wanting to go the way of Debenhams (Previously £DEB now delisted), Gap announced in a statement dated 20th October, that it was considering closing all its UK stores.
What Does This Mean For Traders?
Following this announcement Gap leapt up over 13% on the 21st. A drop of near 5% followed this, at market opening the following day. After that, the stock proceeded to rise and finished with just under a 1% gain.
While long term investors may be concerned their chance of a bargain is gone; there is a crucial takeaway from the announcement for day traders.
The keyword is ‘considering.’ While the initial reaction may be positive, this report is coated with uncertainty which promises volatility.
Strategies: Both Short And Long
Friday’s result shows traders should be cautious about leaping in to short the stock, at least for now.
Unless planning on trying to hit multiple rises and falls per day with CFDs (and you can bet those spreads won’t be right) – it’s likely that in the short term, it could be better to consider going long. At least on $GPS.
Should the market stay cautious with Gap, there could be more exciting movements with their rivals. On 21st €HM-B fell 3 Kr on response to the news and has been volatile since.
Note though these fluctuations are small (that 3 Kr drop was around 2%) so leverage may be needed to unlock the potential there.
When The Prices Get Slashed
The real shorting opportunity comes mid-November. The current rise grants a day trader the chance to exploit a potential drop around the 19th November earnings date. While the market is never predictable, the restructure Gap is planning suggests the news won’t be good.
As always keep your wits about you, and don’t expose yourself at too much risk.