Today, we’re opening a new bullish trade on Tiffany & Co. (TIF). TIF just completed an inverted “head-and-shoulders” pattern (a bullish reversal pattern) by breaking above the neckline at ~$82 and is ready to move higher.
Based on the $7 height of the pattern ($82 for the neckline – $75 for the head = $7 pattern height) we expect TIF to eventually climb up to $89 ($82 breakout level + $7 pattern height = $89 price projection). However, with some near-term resistance at $85 (based on support in May and the consolidation range in late August), we are choosing the $85 strike.
‘Buy to open’ the TIF December 85 Calls (TIF151218C00085000) for a maximum price of $3.00.
TIF is in a strong position to rally into the holiday shopping season. The stock should benefit not only from increased jewelry purchases as couples look for that perfect Christmas gift but also from falling gold and silver prices. The uptick in Chinese economic data is also a good sign for TIF as the company generates more than 10% of its revenue in China.
As the stock market remains strong, we anticipate TIF will continue to climb in the run-up to its quarterly earnings announcement on Nov. 24, before the market opens. We should be able to enjoy a ramp-up in implied volatility during that same timeframe.
A head’s up on the Walt Disney (DIS) calls we recommended earlier in the week. We’re closing that position as rumors of more bad news from ESPN shocked traders to spoil the DIS rally. We would normally give this trade a little “breathing room” to see how it shakes out. However, with earnings scheduled for today after the close, this selling could get some more legs and end far below our break-even point. With the major indices reaching resistance, we don’t want to let this one run any further. We recommend closing the DIS position as close to break-even as possible.
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InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news.
