The trade idea to look at today is in Fossil Inc. (NASDAQ:FOSL). Fossil makes fashion accessories, and one of the great things about the rally we’ve had over the past couple of weeks, specifically starting on Friday, May 3, is that we had a series of breakouts that went from group to group.
For example, we saw the automobile and automobile parts, such as Advance Autoparts (NYSE:AAP), break out. Then, among other days, a few days ago, we saw the fashion group make a group high, all of them moving to important double-top formations, which, actually at this point, look good to move higher.
One of the stocks that started moving Wednesday was Crocs (NASDAQ:CROX). This isn’t exactly consumer fashion so much, but it did move higher and broke a pretty good level Wednesday and got into the $16.50 – $17.00 resistance area.
Then there’s Fossil, which reported earnings just a couple of days ago, on the back of which they had a big rally up and past a resistance range that was, more or less, intact for all of 2013, with the one shooting star that I show you on the chart in the video being in the one exception. Shooting stars are great trade setups for bears to trade to the downside.
If you look at FOSL a little bit more long term – and by long term, I mean looking back just about a year – you see the stock had a huge drop off right after earnings last year on May 8, 2012. So, the same quarter that the company just announced, last year it had a big drop down and this year it has a big gap up. So, there’s a lot of empty space and gap down that still exists. If this ever gets filled, FOSL has room to run all the way up to $125. At the moment, the stock is trading at $109.50 as of Wednesday’s close.
So, essentially, what we had Wednesday, as far as I would define it, was a breakaway gap, and then a continuation move. I think, for all intents and purposes, FOSL has broken out of near-term resistance. It now has room up to about $115, which would be the 2013 high. This was an intra-day high, so it’s not as clear a high, but it’s a high nonetheless. Beyond that, FOSL could run to $125.
I would arguably say FOSL is somewhat overextended in the immediate term. Beyond that, the stock does have a pretty good chance of moving higher. For those looking at this trade, I would think a stop somewhere near the lows of May 7 around $105.50 is probably pretty good because if FOSL drops significantly below there on a daily closing basis, there’s a pretty good likelihood of filling the gap I show you on the chart in the video.
From a risk/reward point of view, you’ve got very defined risk with a lot of upside, as far as I’m concerned here, on this trade setup in FOSL.