How to Trade Ralph Lauren Shares After the Stock Lost Its Shirt

NEW YORK (TheStreet) -- Ralph Lauren (RL) shares haven't had a good year so far, but the company's earnings report Wednesday could change that.

The stock traded as high as $187.49 on the last day of 2014 as investors were counting on strong holiday sales for the clothing, furnishings and fragrance designer and retailer.

But a downward slide began on Jan. 9 when Janney Capital Markets downgraded the stock to neutral from buy.

Ralph Lauren plans to report earnings before the market opens Wednesday, and analysts on average expect the company to earn $1.32 a share. Whether the company can beat this consensus estimate is a coin toss. If the company misses estimates, any additional decline in the stock may be factored into the stock's technical charts and key technical levels.

Between Jan. 27 and Feb. 2 shares of Ralph Lauren stabilized around its 200-day simple moving average, which was then $165.13. An earnings miss reported before the opening bell on Feb. 4 resulted in a price gap below the 200-day simple moving average, and the stock's slide did not subside until March 11. Since then the stock has been trying to stabilize.

Let's look at the daily and weekly charts for Ralph Lauren and provide the key technical levels at which to buy on weakness and the key technical levels at which to sell on strength.

Investors not familiar with technical analysis should begin with the notion that a price chart for a stock shows a road map of past price performance, which provides guidance for predicting future share price direction.

Here's how to read a daily chart. There are two moving averages to follow; the 50-day simple moving average is in blue while the 200-day simple moving average is in green.

Here's how to read a weekly chart. This chart shows weekly price bars going back to the beginning of 2007 and thus includes the Crash of 2008 and then the current bull market for stocks that began in March 2009. The red line tracks the ups and downs of the key weekly moving average. The green line is the 200-week simple moving average. The red line that oscillates along the bottom of the chart is the momentum reading on a scale of 00.00 to 100.00. A reading of less than 20.00 is oversold, and a reading of more than 80.00 is overbought.

A technically positive weekly chart occurs when a stock ends a week above its key weekly moving average with the momentum reading rising above 20.00.

A technically negative weekly chart occurs when a stock ends a week below its key weekly moving average with the momentum reading declining below 80.00.

Here's the daily chart for Ralph Lauren.

Courtesy of MetaStock Xenith

Ralph Lauren had a close of $135.20 on Monday, down 27% year to date, with the stock 6.2% above its 2015 low of $127.29 set on March 11.

The stock has been below its 200-day simple moving average since Feb. 4, when that average was $165. The stock gapped lower on Feb. 4 following a huge earnings miss reported before the market opened that day. The stock traded as low as $127.29 on March 11. From the close of $185.16 at the end of 2014 the stock fell 31% to the 2015 low of $127.29.

The stock is above its 50-day simple moving average of $134.45 and well below its 200-day simple moving average now at $158.55.

Here's the weekly chart for Ralph Lauren.

Courtesy of MetaStock Xenith

The weekly chart for Ralph Lauren will shift to positive if the stock closes on Friday above its key weekly moving average of $136.62 as its projected momentum reading of 38.86 is rising from 29.44 a week ago.

Investors looking to buy Ralph Lauren should place a good-till-canceled limit order to purchase the stock if it drops to $127.29, which was the March 11 low.

Investors looking to reduce holding should place a good-till-canceled limit order to sell the stock if it rises to $142.41, which is a key level on technical charts until the end of May.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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