A lot of stock charts are looking bearishly similar these days. But if you want to get away from the abundance of volatile and loose-fitting price patterns on most charts these days and prefer a tighter-knit, bearish formation, try on Deckers Outdoor (DECK) stock for size.
If you’re like me, maybe you thought DECK stock and its fortunes were tied to the men’s department at Macy’s (M) or some other retailer that sells casual, but smart-looking apparel? In fact, that’s Dockers I was mistakenly thinking about — a brand owned by Levi Strauss & Co. So, if you weren’t confused or misinformed about DECK stock, you had a very likely, leg up on me.
DECK stock is actually tethered entirely to the footwear business of Deckers Outdoor, a company that has been around for more than 40 years. Deckers brands include Simple, Sanuk, Hoka One One, Teva and UGGs.
As a consumer, but maybe not the most brand conscience person around, I can say I like some of Deckers Outdoor brands. I’m a big fan of Simple and have worn Tevas over the years.
But what about DECK stock?
As a trader, Deckers shares are giving me the chills right now. In fact, even if I put on a pair of UGGs furry winter boots — the ones that look like they were modeled after Chewbacca — I wouldn’t warm up to shares of Deckers Outdoor.
Let me explain.
DECK Stock Weekly Chart
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Since DECK stock’s breakdown into bear territory below the key long-term moving average, the bulk of the time has been spent hemming and hawing in a congestion pattern that took on the shape of symmetrical triangle.
Trading Deckers stock within the formation as it developed probably proved hazardous. The good news — for bears in particular — is the congestion pattern is now broken, confirming weakness for bears in DECK stock.
Over the past couple of weeks, shares of Deckers Outdoor have digested the breakdown by consolidating below the triangle’s late January low and suggest DECK stock is poised to drop further.
DECK’s technical contraction has worked to dissipate any short-term oversold readings and readying itself to break a secondary support line and 50% Fibonacci retracement level, as shown in the chart above.
The secondary support line drawn from the spring 2014 low to January 2015 low might be viewed as a weekly chart neckline from an irregular head-and-shoulders topping pattern. And if this larger pattern is broken, it should send a very bearish signal.
A longer-term price projection from shares’ unorthodox double head down to the neckline suggests DECK stock is conservatively heading to $45 and possibly the low $30’s before a bottom is in place. But, first things first.
DECK Stock Bear Put Spread
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Given very modest liquidity in DECK options, the vertical’s tight strike distance, relationship to Deckers’ stock price and close expiration allow for unwanted risks to be minimized, but not at the expense of generating nice profits.
If DECK stock were to move higher, use a 50% money stop as initial protection to reduce the spread’s built-in and guaranteed max loss. This should allow for sufficient wiggle room/stock volatility so you don’t get stopped out prematurely.
Regarding the October vertical’s profit potential: If Deckers tests its recent lows below $60 in the next week or so, profits of 30% to 50% are possible initially. And if DECK stock remains under the $60 strike at October expiration, the bear spread gains even stronger traction as it would expand to $2.50 for a profit of $1.50 or return of 150%.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
