Shares have dropped almost 30% on the day as investors digest the company’s earnings report.
After digging through the numbers, it’s no surprise why sellers are lining up.
The company reported a surprise second-quarter loss vs. expectations of a small profit and after generating a profit in the same period a year ago.
Lowering its full-year sales outlook didn’t help soften the blow, either.
With the Nasdaq posting a robust rebound Tuesday, imagine what the carnage could have looked like had it been another tough day in tech. Let’s look at the charts.
Trading Stitch Fix
The decline in Stitch Fix is what I call “deliberate price action.” In other words, there are very set-in-stone levels that traders are watching ahead of events like earnings.
In the case of Stitch Fix, those levels include $52.45, the prior all-time high which was set in 2018. That level was finally eclipsed in December 2020, as the stock was breaking out on strong momentum.
The stock opened just below this level, as well as the 161.8% downside extension from the recent correction.
In my experience, that’s deliberate price action - it’s not a coincidence.
Shares tried to rally off the open and reclaim these key marks, but the stock was rejected and is now moving lower, below $50.
Unfortunately, that doesn’t bode well for bullish sentiment.
For bulls to regain control, they need to get the stock back above $52.50. Above puts the 100-day moving average in play near $60, before a potential gap-fill near $67 and a test of the 10-day moving average.
On the downside, there are a few key levels too.
Near $42.50 is the 200-day moving average, a measure that hasn’t been tested since summer. Should it get there, I want to see this level act as support. However, a break of this mark makes things interesting.
It could put a test of the 261.8% downside extension in play near $36, but more importantly, that would fill the gap from December.
To get there, shares will need to decline 68% from the all-time high. Already down 57.5% from the highs though and it’s possible.