Coach Stock Is on the Ropes; Short COH Now

by Serge Berger | April 30, 2014 8:16 am

Fashion accessories manufacturer Coach (COH[1]) announced fiscal Q3 results before the bell Tuesday, leading to a miserable day for COH stock holders.

[2]Coach earnings came to 68 cents per share, which topped analyst estimates of 61 cents but were down 21% year-over-year[3]. Bigger trouble came in revenues, which at $1.1 billion were lower than the expected $1.13 billion.

The real focus for COH investors was the company’s sales breakdown by region, and that was a mixed bag.

The company’s sales breakdown by region however was the focus for investors and there it was a mixed bag. North America sales fell 18% YOY to $648 million, while comps fell 21%. On the other, hand international sales rose 14% to $441 million, with great growth in Asia where sales in China rose 25% and sales in Japan were up 10% year-over-year.

Still, it is becoming increasingly clear that in the U.S. market, COH is losing the battle to competitors[4] such as Michael Kors (KORS[5]), and as such, the weakening comps were the focus for investors after the report.

In response, Wall Street punished Coach stock to the tune of 9.34% — an ugly day for a stock that has been constantly sliding lower for more than two years now.

Coach Stock Charts

After an ultra-steep rally off the early 2009 lows, Coach stock topped out in a classic fashion in early 2012. A last rally from August 2011 into early 2012 gave up all of its gains just as quickly after topping. From a technical perspective, COH developed the head formation of a large head-and-shoulders pattern.

By March 2013, Coach stock had retraced 50% of its entire rally off the 2009 lows to the 2012 top, and the ensuing bounces acted as forming the right shoulder of the massive head-and-shoulders formation. Since late 2012, COH shares have formed a series of lower highs (the right shoulder), all of which is adding lots of weight on the neckline of the formation around the $44.50-$46 area.

After Tuesday’s post-earnings selloff, Coach stock has once again reached this thinning support line, and through this multiyear lens, COH now clings on to a major level, which if broken could push shares well lower still.

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On the daily chart, Coach stock also has fallen out of a bear flag formation, pushing COH back near its February lows. Also note that COH bumped into resistance near its 100-day moving average (blue line) on Monday.

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From a momentum perspective and keeping the multiyear chart in mind, barring any immediate bullish reversal, Coach stock looks to be poised for lower prices in the near-term.

Active traders and investors can consider shorting the stock near Tuesday’s lows for a move toward the low $40s, while more conservative traders might want to see if COH can’t consolidate for a few days before trying it from the short side. Options traders may consider selling out of the money call spreads.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here[7]. As of this writing, he did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2014/04/coh-coach-stock-technicals/

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