Coach (COH) shares are taking a massive hit Wednesday afternoon following this morning's pre-open earnings report. Investors began aggressively dumping shares in the pre-market, pushing COH to a huge downside opening gap. Volume pacing the decline is massive and will easily be the stock's heaviest downside day ever by the close. At midday COH is off 15% $51.27 to as it stabilizes just below the September through November lows.
Coach (COH)
Source: TradeStation
View Chart »View in New Window »
Ahead of this morning's second-quarter report, COH had heavy resistance near $60. This supply zone had previously capped the October through December highs before giving way on Jan. 14. The week prior to today's report, COH held the mid-January gains while consolidating above its 200-day moving average. The stock appeared firm ahead of the news giving the bulls extra confidence. The extreme reaction today indicates many were caught leaning to the long side.
Despite the ugly price action, I believe Coach will soon reach a very low-risk buy zone. In late July, shares reacted similarly to a disappointing earnings report. The stock plunged more than 18% on the news on nearly 10x its average volume. COH continued slightly lower over the next few sessions but the main damage was done. A new monthly low was put in Aug. 1 before the stock began a significant rebound. In less than five weeks, the huge July 31 breakdown gap was filled after a 20% rally.
At today's early lows, COH has held moderate support near the $50.40 area. Just as the stock left behind a spike low last August, an upside gap was left behind here. I doubt this area will hold under the tremendous downside momentum and I expect a drop below $50. Just below this level are the July/August lows between $49 and $48.20. This area is a low-risk buy zone. If taken out on continued heavy selling (which is possible considering the stock has a long way to go before becoming oversold), more downside is likely. I will be a buyer below $49.50 and will maintain a tight stop. If a similar reversal to the August action takes hold, new longs will be quickly rewarded.
At the time of publication, Morrow had no positions in the stocks mentioned.