Crocs, Setting Up For A Breakout

Flipping through the charts last week I came upon an old favorite trading stock that currently rests just inches away from a meaningful breakout higher.  The stock is Crocs Inc. (CROX) – traders might still remember the stock’s spectacular rise and subsequent fall in the 2006 – 2008 time period.

From a pure volatility point of view the stock has long since quieted down, but as the company ‘reinvented’ itself and turned from a one-product shop into a full fledged shoe company, the stock has been starting to display more interesting patterns to trade off.

Looking at a chart dating back to the summer 2011 highs, I saw that the stock  broke to the upside of an important down-trend line in late January.  From a medium-term point of view the development was significant enough for me to take note, especially given the orderly move up with higher lows and higher highs off the November lows.

After developing the November low, the stock gapped up and  ran higher on November 27th.  This breakaway gap formation served as the powerful beginning of the ensuing rally.  After a series of higher lows, the last two of which also held at the supportive 50 day simple moving average (yellow line), the stock last week retested its January highs near $15.90 but failed to close significantly above there.  I am looking for the stock to consolidate some here, coiling up below resistance, in order to make a good run past the January highs and well into the $17 – $18 range for a 10%+ run.

Given that we are likely in the latter stages of he current run up in the broader stock market, the other thing going for Crocs Inc. (CROX) is that during such late-stages, lower quality names get bid up by fund managers in their effort to chase stocks higher.

As a general rule I don’t hold stocks through earnings announcements (I can always get back in).  This holds especially true to Crocs Inc. (CROX), which given its big moves around such events makes it risky to hold.  The company is scheduled to announce its next earnings on April 25th.

 

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