Easing Tensions in Hong Kong Will Help Luxury Retailers

And a strong U.S. consumer is an added bonus

This morning, I am recommending a bullish trade on Tapestry, Inc. (NYSE:TPR), the luxury accessory company that owns brands like Coach and Kate Spade.

My indicators are giving very strong buy signals this week, a nice upgrade from last week’s neutral readings. However, we are now in September — one of the worst months of the year for the market — so caution is still warranted.

As I mentioned on Tuesday, consumer confidence is still high, and this week we got some reports that confirm the U.S. economy is doing well. Easing tensions in Hong Kong have also helped push stocks like TPR up.

Low Unemployment and an Expanding Economy

The ADP employment report released on Thursday also reflected a strong U.S. economy. It showed that private payrolls increased by 195,000 in August, which was well above estimates. According to the Bureau of Labor Statistics (BLS), unemployment is still sitting at 3.7%, which is close to a 50-year low.

And though the Institute for Supply Management (ISM) Manufacturing Index for August indicated the manufacturing sector was in contraction, the ISM Non-manufacturing Index countered that poor reading, indicating the broader economy is expanding.

Low unemployment and an expanding economy are good for the American consumer, and globally, TPR is seeing some relief in Hong Kong now that protests are dying down.

Hong Kong has some of the largest, most expensive malls in the worlds, and since protests started, sales have dropped. That has a negative effect on luxury brands like TPR. The Hong Kong extradition bill, which was a major concern of protesters, has been pulled, which should alleviate some tension.

Challenging $25

TPR dropped in mid-August after meeting earnings per share expectations, and it established support a just under $19. Over the past two weeks, the stock has slowly moved upward, and now it looks like it may fill in the post-earnings gap.

Daily Chart of Tapestry, Inc. (TPR) — Chart Source: TradingView

In the chart above, you can see that TPR has already broken above its new resistance level at $22. That level could become new support, and after retesting, TPR may challenge $25, its pre-earnings low.

Buy to open the Tapestry, Inc. (TPR) Nov. 15th $25 Calls (TPR191115C00025000) at $1.20 or lower.

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