Sell-offs and support

03/08/22
  • PVH down 25% in two days on European demand concerns
  • Stock has retreated to longer-term technical level
  • Earnings due out toward end of month

Context is always important in the markets, but never more so than during periods of volatility, when investors and traders run the risk of overreacting to short-term price moves.

For example, on Monday PVH Corp. (PVH), the apparel retailer behind brands such as Calvin Klein and Tommy Hilfiger, followed a nearly 12% loss on Friday with a 15% intraday loss on Monday amid reports that some analysts were concerned the Russian invasion of Ukraine could disrupt European demand:1

Chart 1: PVH Corp. (PVH), 6/19/19–3/7/22. PVH Corp. (PVH) price chart. Back into the zone?

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)


As of yesterday afternoon PVH was down around 45% from its November close of $123.26, had given back more than half the rally off its March 2020 lows, and was lower than it had been since late 2020. But traders who took the time to reference the longer-term price action may have noticed the move also placed the stock within a technical zone (roughly $67–$72) that has functioned as support and resistance for more than two years.

After PVH first rallied off this level in August 2019 (up arrow), it served as resistance in June and September 2020 (down arrows), turning back two rallies before the stock pushed to its 2021 highs. In effect, Monday’s lows represented a test of those former highs.

While there’s no guarantee this zone will again function as support, there may be other reasons traders would be looking for signs of stabilization, including the company’s upcoming earnings release (PVH has shown a tendency to bounce the week after earnings2), and the uncertainty still surrounding the invasion—i.e., its economic implications are unknown, for better as well as worse.

Finally, those inclined to ignore such price levels may want to consider the stock’s behavior around the smaller zone (roughly $89.50–$92.50) that supported four notable bounces last year and early this year before Friday’s breakdown.

Support and resistance levels were made to be broken, but until they are, many traders are inclined to at least keep them on their radar.

Market Mover Update: April WTI crude oil futures (CLJ2) closed in the lower half of the day’s range yesterday, but not before topping $130/barrel in overnight trading. It was the highest crude had been since August 2008, the month after it set it record highs above $145.

One of the symptoms of the energy crunch that has unfolded amid the Russian invasion of Ukraine has been another surge in coal stocks, many of which posted big gains last year. On Monday, two coal companies, Arch Resources (ARCH) and Alpha Metallurgical Resources (AMR), appeared on LiveAction scans for unusual call options activity and price gains (AMR released earnings yesterday). Both stocks have so far ignored 2022’s stock market bearishness, and both have surged more than 40% over the past eight trading days:

Chart 2: Alpha Metallurgical Resources (AMR) and Arch Resources (ARCH), 12/31/21–3/7/22. Coal stocks price chart. Coal-fired rallies.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)


Many solar, wind, and nuclear energy stocks also bucked yesterday’s market weakness.

Also on Monday, gold topped $2,000/ounce for the first time since August 2020 (the month after it set its all-time high). Meanwhile, palladium jumped to an all-time high above $3,400/ounce before reversing to close below $3,000. South African palladium miner Sibanye Stillwater (SBSW) has rallied more than 30% since February 10.

Today’s numbers include (all times ET): NFIB Business Optimism Index (6 a.m.), Balance of Trade (8:30 a.m.), Wholesale Inventories (10 a.m.).

Today’s earnings include: Dick's Sporting Goods (DKS), Bumble (BMBL), Casey's General Stores (CASY), Stitch Fix (SFIX).

 

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1 MarketWatch.com. Ralph Lauren, PVH downgraded as Russia’s invasion of Ukraine threatens European demand. 3/7/22.
2 StreetInsider.com. Phillips-Van Heusen Corp. (PVH) Earnings. 3/7/22.

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