I recently was flipping through the charts and came upon an old favorite trading stock that just so happened to rest just inches away from a meaningful breakout higher.
That stock is Crocs (NASDAQ:CROX), and traders might still remember the stock’s spectacular rise and subsequent fall in the 2006-08 time period.
From a pure volatility point of view, the stock has long since quieted down, but as the company “reinvented” itself and turned from a one-product shop into a full-fledged shoe company, CROX has started to display more interesting patterns to trade.
Looking at a chart dating back to the summer 2011 highs, I saw that Crocs broke to the upside of an important downtrend line in late January. From a medium-term point of view, the development was significant enough for me to take note, especially given the orderly move up with higher lows and higher highs off the November lows.
After developing the November low, the stock gapped up and ran higher on Nov. 27. This breakaway gap formation served as the powerful beginning of the ensuing rally. After a series of higher lows — the last two of which also held at the supportive 50-day simple moving average (yellow line in the chart below) — CROX last week retested its January highs near $15.90 but failed to close significantly above there. I am looking for the stock to consolidate some here, coiling up below resistance, to make a good run past the January highs and well into the $17-$18 range for a 10%+ run.
Given that we are likely in the latter stages of the current run-up in the broader stock market, the other thing going for Crocs is that during such late stages, lower-quality names get bid up by fund managers in their effort to chase stocks higher.
As a general rule, I don’t hold stocks through earnings announcements (I can always get back in). This holds especially true to Crocs, which given its big moves around such events makes it risky to hold. So keep in mind the company’s next earnings announcement date, April 25.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.