Crocs, Inc. (CROX) jumped by almost 9.00% yesterday on the back of an upgrade by Goldman Sachs.  The stock’s fairly small market capitalization of $1.23  billion has also led it to trade in a volatile manner over recent years.

Yesterday’s rally came just after the stock had hit its low for the year earlier in November (45% off the 2012 highs and -21% for the year) and consolidated the most recent sell-off that started in October.  Given the jump off this low, accompanied by more than three times its average daily volume, the stock  has likely changed direction in the near-term.

The area around the $14 level had served as support in 2011 and 2012, until Crocs, Inc. (CROX) broke below there in October.  Yesterday’s rally has brought the stock right back up near this toggle line, which could act as some resistance.

A closer look at Tuesday’s trading action shows that the stock had opened or gapped-up above the previous thirteen days of trading and thus quite violently broke out of this consolidation period on the bottom.

Downside momentum has slowed since the October post-earnings sell-off while price continued to slip.  This so called positive divergence between price and the relative strength index (RSI) has in effect caused the stock to coil up and further marks Tuesday’s rally as significant.

Should the stock be able to move above the $14 mark, it would start to move into the empty space which is the gap-down from October 25th and works to just about the $16 area.  Additionally, the stock in October put a good amount of distance between itself and the 200 day simple moving average.  A move  higher into the October 25th gap would serve as potentially healthy mean-reversion.

In summary, a drop below Tuesday’s low at $12.85 would clearly be bearish and a sign to exit any long position initiated on the back of Tuesday’s rally.  An upside target near $16 seems reasonable given the setup described above.

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