Despite an up day for the broad market, smaller-cap shares struggled yesterday. What I found even more surprising was the lack of really attractive bullish setups.
Rather than a breakout setup, I'm looking at a stock with very strong charts, both on the short and intermediate time frames, for possible pullback entry opportunities. With the run we've seen from Skechers (SKX) over the past 3 months, a pullback is probably the only thing most traders want to buy, given the stock has moved from the low $70s to over $123.
The stock had been trading in a narrow channel since mid-May, but recently accelerated up the slope of the channel. Unfortunately, that has me cautious on very-near-term prospects. In other words, it is a tough chase here. The slow stochastics are very strong and overbought, although that didn't stop the run from mid-April through the end of May. The Force Index looks a bit deceiving due to the big gap up in late April on big volume, but if we focus just on the recent action, it does look set up to breakout higher.
In short, there is no reason to be bearish, but the ideal entries have come with a sharp dip in the slow stochastics and a retracement in the Force Index all while holding price support. That would likely give us an entry around $116, or the 21-day simple moving average. A possible play here is selling bullish put spreads using the $115 strike as the short leg and using $110 or $105 as the long leg. Earnings are out at the end of the month, so that must be taken into consideration when weighing risk versus reward here.
The weekly chart is somewhat similar, but here we are just moving from one tight bullish trading channel to another tight bullish trading channel, albeit at a higher level. This new channel is a bit steeper as well.
Overall, there is nothing but strength here, but again, we are very extended. I'd like to see a further drop in the Mass Index, as dips to 25.5 have been solid entries. What I don't want to see is a bearish crossover in the Moving Average Convergence Divergence (MACD), as that would be a big yellow flag. Fortunately, we seem to be some distance from that, but with earnings in less than two weeks, this could quickly change.
From a longer-term earnings standpoint, I see this one as a potential very big mover. On the downside, $110 is quite possible on a disappointment -- with a move down into the $90 to $100 range over 6 weeks even on the screen. On the upside, a big squeeze could develop -- moving this to $136 quickly with a finish around $150. I really don't foresee the sub-$100 range in play, even if the chart outlines it as a possibility. I would call it faint at best.
Should we get a pullback to between $100 and $110, I would be looking for a bounce play. The strength is there, but the chase is a bit too hard to endorse. Instead, be patient and see if you can get some pullback here to get a more attractive entry in a very strong name.