This Stock Is Bound to Pop

Retail stocks have been on fire this month. All the trade war drama has done little to dampen their enthusiasm. With the S&P Retail ETF (NYSEARCA:XRT) a stone’s throw away from all-time highs, I took a stroll through the sector last night and discovered many mouth-watering charts. One of the best was Michael Kors (NYSE:KORS).

Let’s take a deep dive into its price action and build a trade to capitalize on further strength.

A weekly view reveals the epic moonshot that doubled KORS’ share price in a little over five months.

Since then, the recovering retailer has built a choppy base between $56 and $69.

Consider this a bit of well-deserved digestion after gorging on a buffet of profits.

Consolidation spurts like this allow stocks to work through overbought conditions and build sustainable bases for further gains.

Source: OptionsAnalytix

In late-May, KORS stock stumbled after a disappointing earnings announcement. What impresses me, however, is the speed with which it rebounded. The 200-day moving average marked the spot where buyers sallied forth, driving KORS back to the high of the range. Since then, we’ve seen a classic high base pattern form. I find it very impressive that we have little giveback during the broader market’s recent temper tantrum. This relative strength should bode well for the stock moving forward.

Source: OptionsAnalytix

I’m watching for a breakout above $69 to signal the stock’s next advance is upon us.

The KORS Stock Option Trade
To fully capitalize on its next advance, let’s build a call spread trade. Buy the Aug $67.50 call option while selling the Aug $72.50 call. The net debit is a mere $2.25 and it represents the max loss if KORS sits below $67.50 at expiration.

The max gain is $2.75, which means you could capture a 122% return if the stock goes the distance and climbs above $72.50 by expiration.

— Tyler Craig

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