Luxury retailer Ralph Lauren Corporation (RL) beat earnings estimates and lifted full-year guidance before the open on Tuesday, Nov. 6, but the stock opened 4.8% lower and then slumped below my pivot for this week at $130.52. The stock remains above its 200-day simple moving average at $123.07.
Michael Kors Holdings Limited (KORS) is up next, with the lifestyle luxury brand expected to report before the opening bell on Wednesday, Nov. 7. Analysts expect the company to post earnings per share of $1.09. Piper Jaffray raised its outlook for Michael Kors to overweight with a $71.00 price target. Similar opinions came from Citigroup, Buckingham Research and Credit Suisse. My charts do not share this optimism. The stock is poised for a "death cross" on its daily chart and has a negative weekly chart, with its "reversion to the mean" at $51.64.
The daily chart for Ralph LaurenCourtesy of MetaStock Xenith
The daily chart for Ralph Lauren shows that the stock has been above a "golden cross" since before the year began. The stock set its 2018 high of $147.79 on July 31 on a positive reaction to earnings. This spike was short lived, as the stock moved sideways to down, reaching as low as $120.30 on Oct. 11. When a stock is above a "golden cross," the 50-day simple moving average is above the 200-day simple moving average, and buying weakness to the 200-day is a prudent investment strategy. This occurred on Oct. 10 at $121.01.
Following this morning's earning release, the stock opened below my weekly pivot of $130.52, and it is above its 200-day simple moving average, now at $123.08. My quarterly value level is the lower horizontal line at $110.05.
The weekly chart for Ralph LaurenCourtesy of MetaStock Xenith
The weekly chart for Ralph Lauren needs a close on Friday above its five-week modified moving average of $129.46 to remain positive. Otherwise, there is risk to the 200-week simple moving average, or its "reversion to the mean," at $107.23. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week rising to 41.09, up from 34.36 on Nov. 2.
Given these charts and analysis, investors should consider buying Ralph Lauren shares on weakness to my quarterly value level of $110.05 and reducing holdings on strength to my monthly risky level at $148.94.
The daily chart for Michael KorsCourtesy of MetaStock Xenith
The daily chart for Michael Kors shows that a "death cross" is imminent. This bearish formation occurs when the 50-day simple moving average falls below the 200-day simple moving average, indicating that lower prices lie ahead. The stock is below two horizontal lines, which are my quarterly and monthly pivots at $62.97 and $64.45, respectively. The lower horizontal line is my value level for this week at $55.43.
The weekly chart for Michael KorsCourtesy of MetaStock Xenith
The weekly chart for Michael Kors is negative but oversold, with the stock below its five-week modified moving average of $62.00 and above its 200-week simple moving average, or "reversion to the mean," at $51.64. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 19.05 this week, falling below the oversold threshold of 20.00.
Given these charts and analysis, a good investing strategy could be to buy Michael Kors shares on weakness to the 200-week simple moving average of $51.64 and to reduce holdings on strength to my quarterly and monthly risky levels at $62.97 and $64.45, respectively.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.