Once upon a time, Michael Kors Holdings Ltd (NYSE:KORS) shares were smokin’ hot. But now? They look like terrible. Indeed, KORS stock recently tagged a new 52-week low and has since clawed its way back to a serious resistance level.
With this retailer’s trend and momentum both pointing lower, the time to short the stock is now.
Michael Kors burst onto the scene in the midnight hour of 2011. Its share price closed at $24.20 on its first day as a public company. And then, the stock went ape to the upside rising all the way to the magical century mark before buying appetite finally subsided. Its all-time high of $101.04 notched on February 25, 2014, has held ever since.
Kors’ quarter-by-quarter failure to live up the hype resulted in quite the round trip. At $35.40, the stock is getting close to revisiting its IPO price.
KORS Stock Charts
The weekly chart reveals KORS’ public travels in all their gory details.
Click to Enlarge
Perhaps the most interesting development over the past month is its breaching of the $35 support zone. This price level had previously halted multiple declines, but not this time. There’s simply nothing for bulls to like on the weekly.
Absent a stellar earnings announcement that blows expectations out of the water, expect gravity to continue drawing the stock into the depths.
Drilling down to the daily chart reveals the culprit for KORS recent support break: an earnings-driven down gap.
Click to Enlarge
The rebound over the past week has been impressive, but I suspect it will prove futile. A couple of factors continue to weigh heavily for sellers here:
- First, the stock increased in momentum on its latest plunge. So says the RSI indicator which carved out a new low on the earnings gap.
- Second, price gaps, once filled, often turn into resistance. The potential for such an outcome became all the more likely when Monday’s early morning rally fizzled right at the gap-fill area.
How to Trade Michael Kors
With last month’s earnings fading in the distance, implied volatility has cratered in textbook fashion. Indeed, the post-earnings volatility crush has been on full display. The descent has carried KORS’ implied volatility rank to a lowly 23.6%. And that means options are sitting at some of their cheapest levels of the past year.
If KORS stock trades below Monday’s low ($35.32), consider buying the Jul $37.50 puts for around $2.60. The maximum risk is limited to the initial cost and will be forfeited if the stock sits above $37.50 at expiration.
To minimize the damage, if KORS stock gets uppity, I suggest exiting on a break above the $37.60 resistance level.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
