Editor’s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Trade of the Day until Sam Collins returns on June 27.
Crocs Inc. (NASDAQ: CROX) – This footwear company first became famous for its obnoxiously colorful foam footwear. Over the past few years, however, the company has reinvented itself by expanding its footwear selection beyond its basic models to everything from sandals to loafers to sneakers. In fact, the original models make up only about 10% of the company’s total sales. At an investor conference last week, the company discussed the success of new product acceptance by customers, which means it is slowly growing from a one-product company into a more diversified shoe designer/manufacturer.
Looking at Crocs’ price history, we see a dramatic collapse of its share price in 2007 and 2008. Once the stock reached “cult” status at the peak in October 2007, there was really only one way for it to go. Over the span of just about 12 months, investors saw the stock price slid from $75 down to 80 cents. After struggling to get above $4 for a while, the stock started showing signs of life again in the second half of 2009, and marched from $4 to $21.64 in 24 months.
Presently the stock has several clear support levels worth pointing out:
- $19.50 is a previous multi-month area of resistance that the stock successfully broke above in April.
- The 50-day simple moving average (yellow line) comes in at $20.59, although looking back on the chart, the 50-day simple moving average has not been very well respected as a support or resistance level.
- At about $18.80 currently, the stock would run into a strong uptrend line that originated in September 2010, which was the beginning of the massive rally in the broader market.
- Further below is the 200-day sma (red line) around $17 presently, followed by an uptrend line dating back to December 2009.
My favorite area to buy this stock would be on a retest of the $19.50-$20 area, which by the time the stock gets there may even cross with the uptrend line from September 2010. As a first profit target, I see the May highs, followed by $25 and eventually as high as $30 for those inclined to hold on to the position longer term. Stops also depend on one’s time frame, but on a break below $18.50, I would more than likely get out of the entire position.
Given the overall market’s current weakness it is more difficult to suggest short-term trades to the long side. However, given the company’s fundamental growth story and the stock’s clearly defined support and profit target levels, CROX is worth looking at from the long side on a retest of the $19.50-$20 area.