When it comes to the stock market, it can often be challenging to know what trade to make and when to make it. However, there are those trading opportunities that are clearer and more obvious. Usually, the “keep it simple stupid” trades tend to be the best anyway. Although that doesn’t mean the trade will work out in your favor, at least you knew it was the right trade at that time. A stock that might have made a move that fits that description would be DECK (Deckers Outdoors Corporation).
Deckers Outdoor Corporation is a designer, producer, marketer, and brand manager of footwear and accessories. Deckers sells its products, including accessories, such as handbags and outerwear, through domestic and international retailers, international distributors, and directly to end-user consumers, both domestically and internationally, through its websites, call centers, retail concept stores and retail outlet stores. Deckers market its products under two brands: UGG and Teva. UGG is a brand in luxury and comfort footwear and accessories, and Teva is a brand in multi-sport shoes, rugged outdoor footwear, and sport sandals. Deckers’ other brands include Simple, a line of sneakers and accessories; TSUBO, a line of casual footwear, and Ahnu, a line of outdoor footwear.
DECK had been holding a very important level of support at $75 (red) for the last 7 months. No matter what the market has or has not done over the last year, DECK has not broken below $75 . . . until yesterday. This break of support is probably not too terribly surprising considering the stock had not been keeping up with the latest market rally. When a stock breaks a significant support level, traders would expect that stock to move lower, which is what I would now expect from DECK.
Don’t forget to notice the huge volume spike on the break of support. Volume tends to add validity to a level break.
The Tale of the Tape: DECK had a very important support at $75. Yesterday the stock broke below that $75 level, thus should be moving lower. Although a short trade could be entered now, a better risk/reward entry could be made on a rally back up to that $75 level with a stop placed above that level. I break back above $75 would negate the forecast for a move lower.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT