Footwear and accessories company Deckers Outdoor (DECK) was higher by more than 80% year to date as of Thursday. Fast-forward to today and the stock is “only” higher by around 65% year to date thanks to some research comments. Let’s look at the charts and see if we can uncover a well-fitting trade.
The first research note was a positive one, released last Friday by Eric Tracy of Janney Capital Markets. It made the case for a good outlook based on manageable inventory and a cheaper wool material for Deckers’ shoes. The second note, which came out Monday morning by research firm OTR Global, was not so sunny — leading the stock to sell off 7% on 2.70 million shares, more than double the stock’s average daily trading volume.
Technically speaking Monday’s selling didn’t break any major trends or patterns, but near-term traders and dip-buyers may now want to hold off on any major buying actions until Deckers reports earnings on Oct. 25.
The stock has traced out a good-looking uptrending wedge formation on the 18-month chart. Last week the stock had again reached the upper end of this pattern, and Monday’s selloff has thus far merely pushed the stock again toward the lower part of the wedge.
While the stock’s November 2012 uptrend remains intact, it is important to note that the stock has considerably tightened its trading range over recent months — a break below support and thus out of this rising pennant formation could occur quickly. A forceful breakout of said formation to the downside would be at least near-term bearish.
The daily chart provides a couple of clear support areas to focus around. Off the June lows, Deckers quickly punched above its 50- (yellow) and 100-day (blue) simple moving averages, both of which the stock tends to respect well. The stock continued trading in an orderly uptrending range until Sept. 25, when it broke past a tight resistance pattern near $62.75 and quickly moved toward the upper end of the two-month trading channel (as well as the longer-term pattern laid out on the chart above). From here, Monday’s selloff has taken the stock down toward a retest of the $62.75 area; as long as this level holds, this action is simply consolidation rather than real weakness.
Should Monday’s one-day freakout turn into more selling, next support would be closer to the $60 area, followed by support at $57, which is the stock’s 100-day simple moving average.
All in all, while Monday’s selling is far from an all-out bearish signal, the stock now doesn’t offer any great buying signals either. Those who bought last week’s top may find that reducing their long positions at this stage will make them sleep better at night, while traders looking to buy the stock will likely find better and clearer entry points after the stock’s earnings announcement on Oct. 25.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.