Shares of jewelry retailer Tiffany & Co. (NYSE:TIF) dropped nearly 10% on Wednesday, May 24, following the company’s latest earnings report. The price action resulted in a well-defined bearish breakdown on the charts, but that has set up a trade in TIF stock for active investors.
To its credit, Tiffany beat first-quarter expectations on the bottom line. However, despite a year-over-year improvement in revenues, it failed to meet consensus estimates of around $915 million. Analysts blamed the “sell the news” reaction in the stock to weak same-store sales numbers.
Despite last week’s post-earnings trip, TIF stock still is 11% higher year-to-date, which compares favorably to the -7% year-to-date performance of broader retail, as represented by the SPDR S&P Retail (ETF) (NYSEARCA:XRT).
The question now is whether Tiffany is headed the way of the group, or if last week’s dip truly is a buying opportunity.
TIF Stock Charts
Last Wednesday’s down-gap brought Tiffany shares right back to a familiar line of former support and resistance: the 200-week simple moving average (red).
As you can see on the chart, this line has acted as both support and resistance off and on over the past few years. Most recently, the moving average was a source of technical resistance until price broke back above there in February.
From this angle, the bulls will give the stock the benefit of the doubt and argue that this moving average may now act as support and that last week’s selling will merely act as a retest of this former line of resistance. In principle, I agree with this view from this angle.
But I see something different when we take a closer look.
If we zoom in closer to the daily chart, we can see that last week’s down-gap in Tiffany stock also cleanly broke it below the well-defined uptrending channel (purple-dotted parallels) as well as below its 100-day simple moving average (blue).
From this angle, I see TIF stock providing active investors and traders an opportunity to try it from the short side for a trade. My initial price target is the low $80s, where the 200-day simple moving average (red) resides.
Tiffany & Co. has a history of meaningful up or down gaps following its earnings reports. Often times, after the initial gap, the stock will need a pause before resuming in the direction of the gap for a bit longer.
As such, a trade worth considering here is to short TIF stock against the $88.50 area as a stop-loss and using the $81 area as a first downside target.
As a side note, any strong bullish reversal on the weekly chart could confirm that the stock is indeed finding support at its 200-week moving average from the first chart above. That would be an opportunity to play Tiffany back higher into the low to mid-$90s.
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