Michael Kors is one of those companies that is heavily dependent on consumer spending. It is active in the design, marketing, distribution, and retailing of women’s and men’s apparel, They distribute their goods with physical stores as well as online, both directly, and with reseller agreements.
Its presence is mainly in the United States, Canada, Europe, and Japan. This makes it vulnerable to different cultural styles and different economic types. The world’s economy is in different phases in different parts of the world, this makes for an interesting operational advantage: If consumer spending or an economy is faltering in one part of the world, those negatives may be offset by gains in other parts.
Coming back to consumer spending, (the very engine of economic growth), and we can see a lack of growth all over the world. The best indicator is the Retail Sales economic release that hits markets on a monthly basis. From this, we can see that from the US to Japan and Europe, the Retail Sales indicator is not showing any bright perspectives.
Current troubles in China are not helping either, as it sends an “economic tsunami” all around the world. China is the world’s most successful manufacturer, and a slow-down there is a sign of a lack of demand from the rest of the world.
Chinese equities dipped and erased more than 25% of gains from recent highs, and this made the world’s global equities dip as well. The PBOC (People’s Bank of China) intervened to halt the disaster by cutting rates and allowing banks to borrow at lower levels, but the move has been seen as only temporary help.
Coming back to Michael Kors and what the global downturn means for the company, and we have a grim picture for the period ahead.
Looking at the technical picture, the five years chart shows a clear downtrend from the almost $100/share level to the current $40 area. Price is moving in a channel and the upper trend line seems to be a consistent place for a striking price for put options. This is our trading plan as well, as until the upper side of the channel is broken, it makes no sense to talk about call options.
Therefore, I am favoring a put option by the time prices reach the upper side of the downward channel, and this means the $51-$52 area. The expiration date should be at the end of the month or one month, depending on the moment of time during the month the striking price is reached.
We may have that opportunity soon as the start of September will have the Fed’s press conference, and an interest rate decision may lift markets.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
