Skechers USA Inc (SKX) has been busy tearing up the corporate carpet this year, but investors thinking they’ve missed out still have an entry point to play with.
Skechers, the perennially second-tier footwear outfit known for a failed and gimmicky weight-loss shoe called “Shape-Ups” has rebounded in a big way — as has SKX stock.
Behind Skechers’ turnaround is a successful advertising and marketing campaign aimed at families and focusing product on the “athleisure” apparel trend in retail.
Most recently, Skechers saw dizzying sales growth of 36.4% in 2015’s second quarter. Skechers now holds 5% of the U.S. shoe market and has vaulted into the No. 2 market share spot, slightly ahead of Adidas (ADDYY).
Nike (NKE) remains the 800-pound gorilla with the lion’s share of the market at 62%, but that’s nothing to worry about. SKX stock bulls still have plenty of good things to look forward to.
SKX Stock Daily Chart
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The chart also reveals that a potential undercut, pivot-low hammer candlestick was established Wednesday. The bullish reversal candle sets up within a high-level double-bottom base that’s a bit more than two months in duration.
Should Wednesday’s base low hold, the correction for SKX stock during this base-building process is set at 26%. Depth of 26% is slightly less than the generally accepted 30% corrective yardstick and could provide additional investor support for the hammer candlestick and base to begin working toward higher prices.
More than a few growth-savvy investors watch for developing bases like the double-bottom in SKX stock. Mostly, the lows of such patterns are monitored for eventual and much higher breakout entries in anticipation of momentum.
What I propose is buying weakness in SKX stock near the pattern low rather than waiting for a classic (but much higher) breakout-style entry. The logic behind this entry is similar to buying on weakness that’s expected to be temporary.
Skechers Earnings
Sketchers third-quarter earnings haven’t been issued, but is estimated to fall between Oct. 20 and Oct. 26, according to Yahoo Finance. Optimistically, strong results could act as the catalyst to vault shares of SKX to fresh all-time-highs.
In front of the report, analysts are forecasting earnings of $1.63 per share compared to last year’s profit of $1. Meanwhile, revenues are expected to climb 30% year-over-year to $875.9 million.
SKX Stock Long Call Strategy
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Right now, a long call strategy looks like the right tack to take with Sketchers stock.
Reviewing the board, the Nov $145 call is priced for $3, slightly above mid-market, as of Wednesday’s close with shares of SKX around $126. My proposal is to be ready to pay $3.50-$3.75 using a stop-limit buy order if SKX stock can trade above Wednesday’s hammer candlestick high of $128.79.
Based on the contract’s current pricing, $3.50-$3.75 is an estimated range of where the Skechers call should be priced. This type of entry gives the trader a bit of technical confirmation in SKX stock while still buying mostly on weakness, rather than momentum within the double-bottom pattern.
Should the hammer hold and SKX stock generate the described buy signal for the call, you can use the low of Wednesday’s candlestick to exit for a lesser loss.
Conversely, should paper profits begin to build, pricing out a vertical by selling a call contract above the purchased SKX Nov $145 call would make sense.
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.
