Seeking Value - Catching a falling knife

10月26日

Catching a falling knife is a dangerous method of trading. More often than not it results in further losses, Capri is in a very strong downtrend but this could present an opportunity of a dead cat bounce trade or for value investors confident in the come back if Versace, Michael Kors and Jimmy Choo brands. From what I understand these brands have fallen out of favor and it’ll require excellent execution from management to stop the sinking ship. The luxury market is in a bear market and only the strongest brands will survive - such as Hermes and LVMH. I’d only recommend trading this was a stop loss.

Technical Analysis:

Completion of 5th wave move, possibly the end of the abc corrective pattern.

Failed inverse head and shoulders pattern, this was an easy short at wave b, golden pocket level.

Oversold on the RSI, 4hr RSI of 5!

Support level at the 0.786 retracement level and the $20 psychological level.


Fundamental Analysis

Any buy in into Capri centers on its potential as a turnaround play with strong brand assets at a discounted valuation:

1. Luxury Demand Resilience: Despite economic challenges, luxury demand often proves resilient, and brands like Versace have strong global recognition and appeal, particularly in high-growth markets like Asia.

2. Undervalued Asset with Brand Equity: Capri’s 50% drop presents a value opportunity, especially considering the enduring allure of Versace, Jimmy Choo, and Michael Kors. Versace, in particular, has significant potential in the luxury market if managed strategically.

3. Turnaround and Strategic Growth Potential: Capri’s recent operational challenges and market dip could allow an investor to buy into the company at a low, with potential upside as management executes on growth initiatives and cost efficiencies.

If Capri successfully leverages its brand portfolio and navigates current headwinds, it could rebound, offering a compelling entry point for value-focused investors.

Add this to your watchlist, it’s going to be an interesting few weeks with more downside pain. Personally I’d wait for a sign of strength for a potential rebound trade. I’m not a fan of value investing but I’d be tempted if there’s signs of a turnaround.

Not financial advice.