KORS Gets Caught in a Wedge
Wealth Blueprint Letter | May 27th, 2015
Michael Kors Holdings Limited is engaged in the design, marketing, distribution, and retailing of branded women’s apparel and accessories, and men’s apparel. The company operates in three segments: Retail, Wholesale, and Licensing. The Retail segment is involved in the sale of women’s apparel; accessories, which include handbags and small leather goods, such as wallets; footwear; and licensed products comprising watches, fragrances, and eyewear. This segment operates 176 company-owned retail stores and 176 locations operated through its licensing partners. The Wholesale segment sells accessories, which include handbags and small leather goods, footwear, and women’s and men’s apparel to department stores and specialty shops in North America and Europe. The Licensing segment licenses its trademarks on products, such as fragrances, cosmetics, eyewear, leather goods, jewelry, watches, coats, men’s suits, swimwear, furs, and ties, as well as licenses rights to third parties to sell the company’s products in geographical regions, such as Korea, the Philippines, Singapore, Malaysia, Indonesia, Australia, the Middle East, Russia, Turkey, China, Hong Kong, Macau Taiwan, Latin America and the Caribbean, and India.
Take a look at the 1-year chart of Kors (NYSE: KORS) below with the added notations:
Notice the declining wedge that I have outlined on the chart of KORS. A declining wedge price pattern is essentially a type of triangle formation in which the stock (KORS) has formed a downtrending resistance line (red) and a downtrending support level (green). These two trend lines converging on one another combine to form a declining wedge, which is considered a bullish pattern.
Confirmation of this pattern would occur if the stock broke through the downtrending resistance.
The Tale of the Tape: KORS has formed a declining wedge pattern, which should lead to higher prices for the stock if the pattern confirms. A long trade could be entered on a break above the wedge resistance with a stop placed below that level.
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