Coach Inc (COH) Triggered Head & Shoulders Pattern

Shares of Coach Inc (COH) took it on the chin to the tune of a little over 16% yesterday as the company announced its fiscal year second quarter results.  From a technical point of view, yesterday’s price action in the stock did some damage to the chart, let’s look at it more closely;

From a longer-term point of view, Coach Inc (COH) has been fighting an uphill battle ever since it topped-out in the first quarter of 2012.

If we see the weekly chart of the stock, looking back to 2010, note the steep uptrend that eventually ended in a final push higher into early 2012 before things turned sour.  This peak in early 2012 is also what now represents the head in a massive multi-year head and shoulders pattern.  Given the duration over which this pattern has been building I am forced to be more approximate regarding the neckline of this formation (red horizontal), so I am calling it to be around the $52 mark.  Classically if and when a neckline gets broken to the downside after forming the right shoulders (which was the case yesterday), chart analysts will start measuring an ultimate potential downside target from the pattern.  The way one arrives at this target is by measuring the distance from the top of the head down to the neckline and then subtracting that number from the neckline.  If we do this on the chart of Coach Inc (COH) we arrive at a price target of roughly $27.  Again given the duration it took for the stock to develop the head and shoulders pattern it may not necessarily be the highest probability of trades to short the stock all the way down to $27.  Taking a good 10% out of the stock on the downside however looks good now that the head and shoulders pattern has triggered by the stock breaking below its neckline.

The new year had started off well for Coach Inc (COH) as it was tagging along nicely with the broader market.  Yesterday’s gap-down below the stock’s December lows however was a game changer as it took the stock down to levels not seen since August 2012.

A little closer up on the chart note the trading channel which the stock had been bouncing around in since August 2012.  Yesterday’s trading action slammed the stock right out of this channel, thus also on the nearer-term time frame causing significant technical damage on the charts.  The low from August 2012 may serve as a next immediate-term target, however given yesterday’s triggering of the longer-term head and shoulders target, the 2011 lows in the mid-$40s serves as a better target for now.

Allow me to quickly drop in a more philosophical line: What happened to the stock price of Coach Inc (COH) yesterday just goes to show how quickly things can change for a stock, or for the broader market as a whole for that matter.

 

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