On Wednesday, markets waking up to some red in the equity markets. So, far in 2019, the markets have seen an incredible rip-roaring rally, albeit off of a nasty December. Canada Goose (NYSE:GOOS), for instance, is up 35% of its December lows. That could suggest that it’s time for GOOS stock to retest its lows … but I have a different opinion.
Today marked the first red open in a while, and the so-called “experts” in the media are already calling for retests of December lows. I challenge that notion, as there is no clear fundamental reason to expect it.
Only the failure of the U.S.-China negotiations would bring reasons to sustain another correction. If they come to terms or even just kick the can and avoid the 25% tariffs in March this dip is normal price action.
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Stocks don’t rise continually … they need to dip occasionally to retest breakout levels. From there, they can use the support level as footing for more upside. GOOS stock is no different. It bounced off $40.40 per share and rallied about 20% to $48. Then consolidated there for a few days then mounted another 14% rip to $55 per share.
The same can happen here. Meaning that GOOS can meander a little before it can mount its next rally. However, there are sticking points. First, this here is about the 50% retracement of the December correction. Those who follow Fibonacci consider this a significant level, so trading algorithms may automatically book profits. But as long as GOOS stock sets higher lows and holds pivot points, this isn’t an issue … speaking of those, $55 was an important ledge from which GOOS stock fell 25% starting on Dec. 14.
It is important to note that the correction in GOOS stock wasn’t its own fault. Meaning it wasn’t the case that management made mistakes to warrant the fall. It was a system-wide Wall Street crash from extreme sentiment collapse. Investors were bombarded daily with a barrage of bad news.
The meme of by-the-dip temporarily died and experts were touting the sell-the-rip instead. I knew that it would be only a matter of time before sellers retreat and they did. 2019 has been rip-roaring and it shall continue to be so.
Only politicians can mess things up but I have faith that all sides have too much to lose so they will come to some terms on most important fronts. No one really wants 25% tariffs. And here in the U.S. neither side will want to shut the government down again after seeing how this past one ended.
This is all to say that this tizzy here doesn’t change the 2019 thesis. Things are still healthy and companies are still delivering strong reports. Canada Goose stock is one to hold through the tough times.
Fundamentally, it is not cheap. It sells at 75 price-earnings (P/E) ratio. For an absolute comparison, this is four times more expensive than Apple (NASDAQ:AAPL). But this has been so far a growth stock. For as long as it remains so I don’t worry about its profitability. I want to see them maintain the trajectory and they can only do that if they spend a lot.
Last June’s GOOS earnings report catapulted the stock up 50% to $67 per share. Since then, it consolidated around the $57 point of interest where both bulls and bears fought it out the heaviest. Now it is approaching these level from below and this while going into another earnings report.
I expect good things from management once more so if long GOOS stock I would hold it into the earnings. I acknowledge that the short term reaction to earnings is often arbitrary but this would be temporary. GOOS would need to really paint a bad picture going forward for it to really fall apart.
If I am not long the stock, I would nibble here ahead of the earnings leaving room to add more thereafter. If it dips, then I would have entered into GOOS with a decent blended price. I know that I cannot pick perfect entry points … but this way I know I am not making a major mistake.
I don’t fall victim to chasing headlines. I establish a macro thesis and, within it, I find winning stocks that I can trade. Then I enter the trade and manage it according to my own parameters. The media coverage and Wall Street headlines are often wrong so I have to trust my own homework.
Click here for a bonus video that I recently shared discussing GOOGL stock coming into the earnings. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
