Luxury goods designer and producer Coach (COH) reported better-than-expected fiscal fourth-quarter results before the start of trading last Tuesday, which led to a good and technically significant rally in Coach stock. COH shares rallied further last Friday, thus confirming Tuesday’s move and putting Coach in a good mood chock full of upside momentum in which active investors can partake.
Specifically, Coach earnings came to 59 cents per share — and while that was down 66% year-over-year, it did top analyst forecasts by 6 cents. Revenues, meanwhile, stood at $1.14 billion, down 7% but also ahead of analyst estimates for $1.09 billion.
Part of Coach’s growth story comes from China, where sales grew 20% and the company opened six new retail stores. Coach currently has 153 locations in China, and CEO Victor Luis expects sales in China to0 breach the $600 million mark in fiscal year 2015.
Coach Stock Charts
On the charts, Coach stock has looked dire ever since topping out in the first quarter of 2012, but after a two-year-plus slide, COH increasingly look ripe for a good oversold bounce (at the very least).
Looking at the below multiyear weekly chart, note the very obvious head-and-shoulders formation, with its neckline around the $45 mark. After overshooting in early 2012, Coach stock corrected 40% into summer 2012, thus forming the head of the head and shoulders formation. COH stock then began a choppy sideways move, but one that increasingly looked to pressure the $45 area, thus threatening a break below there, which it finally did this April.
From a momentum perspective, note that the weekly stochastic oscillator on the chart above remained in deep oversold territory from May through July, which is an extended period of time to remain at such oversold readings. Last week’s rally finally pushed COH stock out of a tight consolidation period of more than four weeks, and looks to have triggered a better upside move off the lows.
On the daily chart below, we see that the relative strength indicator bottomed out in early June and began to rise while price continued to chop around in a tight fashion heading into last week’s earnings announcement. Last Tuesday’s and Friday’s rallies, both of which came on above-average volume, pushed COH stock past lateral resistance near the $36 mark and also back above its 50-day simple moving average (yellow line) for the first time since April.
Active investors and traders can now try to hop on the back of this new upside momentum for a move back into the high $30s, possibly the $38.50-$39 area.
For risk management purposes, traders should be mindful that any quick bearish reversal of last Friday’s rally would put the breakout in jeopardy.
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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.