Luxury retailing dynamo Michael Kors (KORS) reported better-than-expected results for its fourth quarter on Wednesday, and threw in some good guidance to boot. And, thanks to that, KORS stock bulls received a gift — namely, a defined risk area to lean against on the long side.
Michael Kors’ earnings came in at 78 cents per share, beating the analysts’ mark by a full dime and representing excellent 56% year-over-year growth. Meanwhile, revenues of $917.5 million were also well ahead of expectations for $816.5 million, and up 26% on a YOY basis.
KORS also sees Q1 earnings per share in line with estimates, but it upgraded its FY 2015 guidance to a range of $3.85 to $3.91, with the low end touching consensus estimates.
All in all, Michael Kors delivered a fantastic earnings report in an otherwise challenging environment for many retailers. However, KORS stock only closed the day higher by 1%, and not without an intraday roller-coaster ride.
Michael Kors Stock Charts
Since its December 2011 IPO, KORS stock has not failed to impress investors; it rallied in an orderly fashion, and to-date, it’s about 385% above its offering price of $20.
For the most part, the stock’s ascent took place in an orderly up-trending channel (black parallels). Like many momentum stocks, however, KORS stock was bid up too aggressively coming into 2014, which resulted in the stock gapping out of the channel (see the multiyear chart below).
This move exhausted KORS, which then spend the past few months consolidating in a higher base. This is constructive action, but it also means that your odds aren’t great with a blind buy right now.
Luckily, after Wednesday’s post-earnings move, the stock’s daily chart has given us a reference point to lean against. Note how KORS stock spent the past few months consolidating the February up-gap above its 100-day simple moving average (blue line). Then, last Friday, KORS broke past the diagonal resistance line (black).
Wednesday’s trading session started with the stock plummeting more than 4% at the open, but bulls quickly stepped in and pushed the stock higher for the rest of the day. Conversely, that means the bears showed weakness and failed to keep Michael Kors down, and as such, more nimble traders now have a chance to lean against yesterday’s intraday lows near $91.80.
Follow-through buying in coming days would further verify Wednesday’s bullish turnaround and could push KORS stock toward the $105 area in coming weeks.
As always, for risk management purposes, any quick reversal of Wednesday’s rally needs to be taken seriously.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
