Signal Says This Retail Stock's on Sale

The shares pulled back this week on news of a Levi Strauss IPO

The shares of Abercrombie & Fitch Co. (NYSE:ANF) have been climbing higher since their Dec. 24 low at $16.65, and topped out at $22.67 earlier this week. The retail stock pulled back from this short-term peak on Tuesday following news denim company Levi Strauss filed for an initial public offering. ANF is now trading near a trendline that's had historically bullish implications, suggesting the equity could be headed on its next leg north.

Specifically, ANF is trading within one standard deviation of its 40-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the five times the stock has pulled back to this trendline in the past two years, it averaged a 10-day gain of 2.3%, with 80% of the returns positive. Widening the time frame out to 21 days yields an average post-signal return of 12.4%. Another move of this magnitude would put ANF near $23.84 -- a level not seen since a late-August bear gap -- based on its current perch at $21.21.

A shift in sentiment could help fuel future upside for Abercrombie & Fitch stock. Short sellers have already started covering their massive bearish position, with short interest down 8.3% since its early December peak. Nevertheless, the 15.49 million shares currently sold short account for almost 24% of ANF's available float, or 9.2 days' worth of pent-up buying demand, at the average pace of trading.

Plus, all 12 analysts covering the retail stock maintain a "hold" or "worse" recommendation. Echoing this is the consensus 12-month ANF price target of $20.31, which is a discount to current trading levels. A round of upgrades and/or price-target hikes could draw more buyers to Abercrombie & Fitch's table.