Crocs (CROX): More Upside on the Horizon

The charts show this footwear manufacturer looks to step up in the near term; get the upside target

   

Crocs (NASDAQ:CROX) jumped by almost 9% Tuesday on the back of an upgrade by Goldman Sachs (NYSE:GS).

Goldman also changed ratings for Finish Line (NASDAQ:FINL), Foot Locker (NYSE:FL), Restoration Hardware (NYSE:RH) and Steve Madden (NASDAQ:SHOO).

CROX’s fairly small market capitalization of $1.23 billion has also led it to trade in a volatile manner during recent years.

Tuesday’s rally came just after the stock hit its low for the year earlier in November (45% off the 2012 highs and -21% for the year) and consolidated the most recent sell-off that started in October. Given the jump off this low, accompanied by more than three times its average daily volume, the stock has likely changed direction in the near-term.

The area around the $14 level had served as support in 2011 and 2012, until CROX broke below there in October. Tuesday’s rally has brought the stock right back up near this toggle line, which could act as some resistance.

crox resistance line 11 28 12 e1354111902852 Crocs (CROX): More Upside on the Horizon

A closer look at Tuesday’s trading action shows that the stock had opened or gapped-up above the previous 13 days of trading and thus quite violently broke out of this consolidation period on the bottom.

crox gap up 11 28 12 e1354111976175 Crocs (CROX): More Upside on the Horizon

Downside momentum has slowed since the October post-earnings sell-off while price continued to slip. This so called positive divergence between price and the relative strength index (RSI) has, in effect, caused the stock to coil up and further marks Tuesday’s rally as significant.

crox oscillator positive divergence 11 28 121 e1354112060847 Crocs (CROX): More Upside on the Horizon

Should the stock be able to move above the $14 mark, it would start to move into the empty space which is the gap-down from Oct. 25 and works to just about the $16 area. Additionally, the stock in October put a good amount of distance between itself and the 200 day simple moving average. A move higher into the Oct. 25 gap would serve as potentially healthy mean-reversion.

crox gap and 200 sma 11 28 121 e1354112134656 Crocs (CROX): More Upside on the Horizon

In summary, a drop below Tuesday’s low at $12.85 would clearly be bearish and a sign to exit any long position in CROX initiated on the back of Tuesday’s rally. An upside target near $16 seems reasonable given the setup described above.

Buy CROX at current levels with a near-term target of $16; exit if CROX drops below $12.85.

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.


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