Shares of footwear and accessories company Deckers Outdoor Corp (DECK) slumped in Thursday trading and broke a notable technical support point. In essence, DECK stock has gone through a five-month topping process that ended with Thursday’s move, and now looks to push the stock even lower.
We’ll look at the areas of support and resistance that traders and investors should eyeball.
News flow has been light around Deckers, and its next big event isn’t until the company’s Jan. 29 earnings report (so, two weeks). At the margin, analysts are positive to neutral on DECK stock, with very few negative notes.
From a contrarian point of view, this is exactly what one would want to see and makes it easier to “take the other side” of the analysts’ view. The beauty of a contrarian view (if one is correct) is that any negative company news and/or analyst downgrades only help to accelerate the downside move, at least to a point.
DECK Stock Charts
Looking at the multiyear weekly charts, we see that the September and December highs in DECK stock may have formed a visually clear double-top. On a relative basis, this double-top also formed below its all-time highs from 2011 and thus could be marked a relative lower high for the intermediate term.
Like many broader stock indices and consumer discretionary stocks, the 2014 rally in DECK stock came on waning upside momentum as is clearly showed by the Relative Strength Index at the bottom of the chart. This divergence between price (higher highs) and momentum (lower highs) is what we call “negative divergence,” and more often than not it is the momentum indicator that wins out and eventually pulls stocks lower with it.
We also see that with Thursday’s selling, DECK stock marginally broke below its late 2012 uptrend, which barring any quick bullish reversal speaks for plenty of further downside.
Moving over to the daily chart, if we squint we see that the December highs on a daily closing basis actually formed a marginally lower high versus the September top. The stock then fell to its rising 200-day simple moving average (red line), bounced and earlier this week formed another important lower high. Thursday’s 4.8% selloff in DECK stock pushed it below its early January lows and thus also below the 200-day MA (on good volume, I might add).
From here, active traders and investors have a defined next support level that DECK stock could target, namely the October lows near $80, although the lower highs from December and early January eventually also call for a lower low, which could push the stock into the low $70s.
However, traders should also be aware of the Jan. 29 earnings report and arguably take a step aside through the announcement.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
