Crocs, Inc. (NASDAQ:CROX) back in late July enjoyed a hard rally after earnings, and bumped into a technical line of resistance that has kept CROX range-bound for years.
The construct of the year-to-date rally is such that a breakout of this longer-standing range has good odds, but investors must exercise patience and either leg into Crocs stock with an initially small position or consider longer-dated call options.
When CROX reported its second-quarter results, the company came in with top line revenue of $345.7 million — lower on a year-over-year basis, but still ahead of analyst forecasts. For the third quarter, Crocs guided for revenue in the $280 million-$290 million range, which was below analyst estimates of slightly more than $290 million.
Many investors and end clients still associate CROX with its original (and fashionably undesirable) shoe. What they fail to see is that Crocs has since has grown into a full-fledged shoe manufacturer. The company now makes anything from children’s shoes to heeled women’s shoes to boots for men, all the while using at least in part the same material that made the original Crocs shoe both comfortable and hygienic.
Crocs Stock Charts
While the company has expanded its offering, CROX stock on the other hand has frustrated most investors with its range-bound movement. The multiyear weekly chart shows that the stock has been stuck in a very well defined range since May 2012 as Crocs underwent a restructuring. Numerous breakouts in Crocs stock have stalled, and breakdown attempts have been rescued.
Of course, CROX ultimately will resolve out of this range in one direction or another, and right now, the odds favor a resolution tot he upside.
On the daily chart, we see that CROX stock rallied about 55% from February to May, then slipped into a consolidation phase right at the upper end of the multiyear range. When the stock jumped 9% following the late July earnings report, it did so by bouncing right off its 100-day simple moving average (blue line) and quickly revisited the multiyear line of resistance (the upper end of the range).
Over the past two weeks, Crocs stock has consolidated in an even tighter range and again right below the multiyear line of resistance.
The trade here is very straightforward: Active investors and traders could look to slip into partial long positions or longer-dated call options at current levels in anticipation of a breakout move. More structurally oriented investors may want to wait for a confirmed breakout move past the $15.90 area on a daily closing basis before entering any long-side trades, which then have a next upside price target near $18.
Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
