Fashion accessories firm Coach (NYSE:COH) has seen an impressive 17.50% rally over the past three weeks as both U.S. and European stock markets pushed sharply higher. Even though medium-term overbought, the stock still looks to have another 4 %- 5% left to go until better resistance is reached.
Click to Enlarge On the multi-year chart at right, Coach had reached a scary support level back in late February, where any break below could have accelerated the downside move. It doesn’t take too much imagination to envision a big head and shoulders formation in the stock, with the neck-line representing the crucial support level. Instead of breaking below support, however, the forces that be came to rescue and quickly lifted the stock , which eventually led to the previous weeks’ sharp rally.
After a sharp rally, thanks in good part to the stock’s April 23 post-earnings announcement pop, the stock consolidated the move for the first week and a half of May. Last Friday, May 10 however, Coach rallied 1.66% on the day and in so doing pushed past a crucial near-term resistance zone near $59, which served as the upper end of a tight pattern. This sort of tight trading pattern is exactly what I am looking for in the current environment where the broader U.S. stock market is likely fairly extended in the medium term, yet tight stock patterns still stand a chance of breaking higher.
Click to Enlarge Given last Friday’s break past the $59 resistance point, the path is now clear for a move up to next resistance which lies between $62.00 and $63.20. Momentum favors longs in COH still, yet any meaningful one-day bearish reversals will need to be taken seriously.