How to Trade Stitch Fix After Its Earnings Ripper
Even before futures markets went from a notable decline to a slight gain, shares of Stitch Fix (SFIX) - Get Stitch Fix Inc. Report were sporting lofty gains in premarket trading.
The stock opened higher by 8.5% and rallied on optimism from the company’s latest earnings report.
Prior to Tuesday’s action, shares actually broke out over resistance on Monday. Because the move happened in a session where Stitch Fix would report its quarterly figures after the close, many were apprehensive to trust the move though.
After all, a negative reaction to the report would likely negate the breakout and could cause traders significant losses. The post-earnings rally makes the trade more interesting now as we begin to map some upside levels.
Stitch Fix stock has been a highly volatile name, with multiple swings of 40% both up and down over the past 12 months. Investors are now wondering if the next big swing will be to the upside following the company’s top- and bottom-line earnings beats.
It’s precisely why Real Money chose Stitch Fix as its Stock of the Day. Let’s have a closer look at the charts.
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Trading Stitch Fix Stock
Daily chart of Stitch Fix stock.
Chart courtesy of Stockcharts.com
As you can see on the daily chart above, Stitch Fix stock broke out over $24 resistance on Monday ahead of its earnings release. It even closed above the 200-day moving average.
On Tuesday, shares opened above the 50% retracement near $26.90, and was eventually met by sellers after rallying north of $28. From here, the setup is actually pretty simple.
Over Tuesday’s high at $28.45 and the next upside target is the 61.8% retracement at $29.44. Bulls will want to see the 50% retracement hold as support. That’s especially true given the company’s earnings and sales beat, along with a solid full-year outlook.
Should the 50% retracement fail as support, bulls will want to see the 200-day moving average hold as support. Below that and the $24 breakout mark will need to hold. Investors will have good reason to worry should $24 fail as support in the near- to intermediate-term.
After Stitch Fix’s breakout and post-earnings jump, this level should not be in the discussion anytime soon. Therefore, if it is, it’s likely a problem.
Here’s the bottom line: Look for a move over Tuesday’s high on the upside, and for support from 50% retracement on the downside.
