Michael Kors, Movado, Tiffany -- How to Trade the Volatility of Luxury Retailers

NEW YORK (TheStreet) -- Investors who live in the lap of luxury are likely to own the branded apparel and accessories made by Michael Kors (KORS), the designer watches from Movado (MOV), and the jewelry and diamonds retailed by Tiffany (TIF). But investors in shares in these luxury retailers must also manage the volatility that typically follows earnings reports from these companies.

All three reported their quarterly results on May 27. Two had downside volatility and one moved higher. Knowing how to trade shares of companies following earnings volatility is important for investors who want to sell strength or to buy weakness.

Here's an earnings scorecard for the three luxury retailers, followed by daily charts and the key trading levels for buyers and sellers of these stocks.

Michael Kors had a close of $45.78 on Thursday, down 39% year to date and 55% below its all-time intraday high of $101.04 set on Feb. 25, 2014. The company became a publicly-traded stock back in Dec 2011 and traded as low as $23.51 on Dec. 16, 2011. Kors was trading flat midday Friday.

The weekly chart is negative but oversold with the stock below its key moving average of $59.79. The momentum reading of 11.28 is well below the oversold threshold of 20.00.

Here's the daily chart for Michael Kors.


Courtesy of MetaStock Xenith

Shares of Michael Kors tracked the 200-day simple moving average higher until this average failed to hold at $86.81 on July 11, 2014. The stock popped 21% from a close of $76.67 on Feb. 3, 2014, to $93 at the open on Feb. 4, 2014, on a positive reaction to earnings. This reaction powered the stock to its all-time intraday high of $101.04 on Feb. 26, 2014.

The stock gapped lower by 3.5% from a close of $85.67 on July 14 to an open of $82.69 on July 15 on an analyst downgrade by Maxim on concerns about the retailer's aggressive growth plans.

Note that you can draw a circle between these two gaps and above the high in what technicians call an "island reversal." This was followed by a "death cross," confirmed on August 8, when the 50-day simple moving average declined below the 200-day simple moving average.

The price gap lower on the far right totaled 18% from a close of $60.59 on May 26 to the open of $49.50 on May 27. Technicians call gap a "falling knife". The stock is well below its 50-day and 200-day simple moving averages off $62.82 and $70.72.

Investors looking to buy Michael Kors should place a good till canceled limit order to purchase the stock if it drops to $44.48, which is a key level on technical charts until the end of next week.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $52.13, which is a key level on technical charts until the end of the year.

Movado had a close of $26.23 on Thursday, 46% below its all-time intraday high of $48.50 set on Nov. 5, 2013. The stock is down 8.9% year to date and down 1.37% for the day at midday Friday. The stock is 16% above its Jan. 15 low of $22.66.

The weekly chart is negative, with the stock below its key moving average of $27.94 and its 200-week simple moving average of $31.39. The momentum reading is projected to decline to 59.16 this week from 64.26 last week.

Here's the daily chart for Movado.


Courtesy of MetaStock Xenith

Shares of Movado have been trading back and forth around the 200-day simple moving average since Jan. 27, 2014.

Note the huge downward price gap of 28% from a close of $38.51 on Nov. 13 to the open of $27.56 on Nov. 14 on an earnings warning. The high of $39.44 on Nov. 13 was a failed test of the 200-day simple moving average of $39.13. This began a down trend to the 2015 low of $22.66 set on Jan. 15.

Note the upside gap of 14% from a close of $25.63 on March 30 to an open of $29.10 on March 31 on a positive reaction to earnings. This upward movement ended with a failed test of the 200-day simple moving average at $32.12 on April 8.

The stock was below its 50-day and 200-day simple moving averages of $28.56 and $30.15, respectively, when the company reported earnings on May 27. The low on May 28 was $25.47.

Investors looking to buy Movado should place a good till canceled limit order to purchase the stock if it drops to $21.15, which is a key level on technical charts until the end of June.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $28.54, which is a key level on technical charts until the end of the year.

Tiffany had a close of $94.63 on Thursday, 14% below its all-time intraday high of $110.60 set on Nov. 25. The stock is 15% above its March 23 low of $82.64. In midday trading Friday, Tiffany stock was down 0.27% for the day, and down 11.6% year to date.

The weekly chart is positive with the stock above its key moving average of $88.89 and its 200-week simple moving average of $77.92. The momentum reading is projected to rise to 58.72 this week from 56.89 last week.

Here's the daily chart for Tiffany.


Courtesy of MetaStock Xenith

Shares of Tiffany have been tracking the 200-day simple moving average higher since January 2013. This trend abruptly ended on Jan. 9 when the stock gapped 10% lower from a close of $103.45 to an open of $92.70 on Jan. 12 as the company announced disappointing holiday sales.

After setting its 2015 low of $82.64 on March 23, the stock was trading sideways going into its May 27 earnings report. A better than expected report resulted in an upward price gap of 8% from a close of $85.53 on May 26 to the open of $92.39 on May 27. The stock traded back and forth around its 200-day simple moving average of $94.23 on Wednesday and Thursday.

Investors looking to buy Tiffany should place a good till canceled limit order to purchase the stock if it drops to $86.85, which is a key level on technical charts until the end of June.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $101.88, which is a key level on technical charts until the end of the June.

Semiannual and annual technical levels of $93.33 and $95.31, respectively, should be magnets until the end of June and into the end of 2015, respectively.

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, 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 below 20.00 is oversold and a reading above 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.

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

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