Monday, January 24, 2011

Trade Idea - Potential Short Candidate: Coach (COH)

While still not ready to bet against the indexes until I see the S&P 500 close below the 20 day moving average, there is finally over the past few months some change from the 'student body left' trading (everything up! everything down!) we have experienced for much of the past 3 years.  Some stocks are going down while others go up, a near miracle.  After a heroic run in latter 2010, retail stocks have materially weakened in 2011, even those that cater to the relatively insulated upper end of the income spectrum.  One stock catching my eye due to weakness is Coach (COH) - a company I actually like fundamentally over the long run.   But technically we have a defined entry for a short near these levels.  The stock has sold off to the $53-$55 range over the past two weeks.  Two ways one could approach this trade (a) try to short the stock near the high end of its recent range (i.e. last Tuesday) or (b) wait for it to break the lows of the past month ($51s).  

Since the stock has been closing below the 20 day moving average every day since late December, I find option (a) to be a solid choice even if a bit more aggressive.  The spike intraday over the 20 day last Tuesday was the one head fake the past month but Coach did not *close* above the 20 day and the close is always more important than the intraday action.  Long time readers will see a very obvious ultimate downside target - that late October gap below $45.  Achieving that would bring a gain of nearly 16%.  On the flip side, a close over the 20 day moving average for perhaps 2 sessions would mean a change in character a reason to take a moderate loss and take your marbles home.

The fly in the ointment AND potential catalyst is the earnings report slated for this Tuesday morning - I don't like to play the earnings game, but if there is a benign reaction to the data (i.e. the stock does not jump significantly) you have the main upside catalyst out of the way, and in a sideways (or heaven forbid downwards) market, this would be an appealing hedge.

No position

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