Skullcandy, Inc. (NasdaqGS: SKUL)

Skullcandy, Inc. develops and distributes headphones and other audio accessories to retailers throughout the United States and to distributors in various countries worldwide. The company is an audio brand that reflects the collision of the music, fashion and action sports lifestyles. The company is engaged in the distribution of headphones in specialty retailers focused on action sports and the youth lifestyle, such as Zumiez, Tilly’s and hundreds of independent snow, skate and surf retailers. It distributes through consumer electronics, mass, sporting goods and mobile phone retailers, such as Best Buy, Target, Dick’s Sporting Goods and AT&T Wireless. Skullcandy products are also sold through its Website. As of September 30, 2010, its product offering had over 1,200 SKUs across a range of categories, including headphones as well as speaker docks, mobile device cases, apparel and other accessories.

Please take a look at the 9-month chart of SKUL (Skullcandy, Inc.) below with my added notations:

As can be seen from the chart above, SKUL has seemed to find support or resistance on or at the increments of $2. First, notice the most recent level at $16 (red) that has been both resistance and support. Next, you can see the off and on, common level at $14 (blue). Lastly, there’s the bottom level of support at $12 (navy). SKUL provides you with trades no matter what direction the market moves. If you like the short side of the market, you could either short SKUL on rallies up to a $2 level or on any breakdowns of them. If you want a long play instead, you could buy SKUL on a pullback to a $2 level or on any breakout through one of those levels.

The Tale of the Tape: SKUL finds the increments of $2 important. Currently, the levels to watch are $12, $14, and $16. The stock just broke below the $16 level, so a short trade near $16 could be made with a stop placed above $16. If SKUL breaks above $16, you could enter a long position with a stop placed below the level. You could also buy SKUL if it comes down to $14, or short the stock if it breaks that $14 support.

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!

Good luck!

Christian Tharp, CMT