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Is This Stealth Smartwatch Player Poised For A Breakout?

Friday, March 21, 2014 - 7:00am

Fashion accessories maker Fossil Group (Nasdaq: FOSL) jumped 4.6% Tuesday after a technically important level and on the back of news that the company is working with Google (Nasdaq: GOOG) on its new Android-based watches.

Considering how long the speculation around a Google (or for that matter, an Apple (Nasdaq: AAPL)) smartwatch has been building, this news is rather big and likely unexpected for FOSL shareholders.

After a weak stretch from November through the end of January, FOSL began to act better in early February ahead of its earnings report. On Feb. 11, after the close of trading, the company reported fourth-quarter earnings per share (EPS) of $2.68 versus analyst estimates of $2.44, a 7% increase from the year-ago period. On the top line, FOSL had $1.06 billion in revenue, beating Street estimates of $1.02 billion. Sales were up 12% on a year-over-year basis.

What the Google watch will mean for the company's bottom line is impossible to say, considering that the entire smartwatch industry is barely in its infancy. Google is also working with Asus, HTC, LG, Motorola and Samsung, and chipmakers Broadcom (Nasdaq: BRCM), Imagination, Intel (Nasdaq: INTC), MediaTek and Qualcomm (Nasdaq: QCOM), so Fossil is far from alone. But it does open up the prospects of FOSL entering into an entirely new type of watches.

And the news put FOSL on more than a few traders' radars. When it comes to finding candidates for swing trades lasting from a few days to a few weeks, this is exactly the type of setup I am looking for.

The weekly chart shows a stock that continues to respect its 150-week moving average, which I would use as a level to draw some context from rather than as a stop-loss level.

More importantly in this time frame is the current triple-top formation that remains to be resolved. As I point out from time to time, in the world of technical analysis, so-called double tops or double bottoms are frequently spotted. Triple tops or triple bottoms, on the other hand, are much rarer, and are not usually seen lasting for extended periods of time.

In that sense, FOSL has found resistance around the $135-$139 area three times since the summer of 2011, most recently in November 2013. Barring any sudden bad news, the stock stands a good chance of at least revisiting this resistance area at some point in the coming weeks or months.

Turning to the daily chart, on Feb. 12, the day after the company's earnings release, FOSL rallied a few percentage points, and by most measures, it looked like the stock was ready for a more meaningful push higher. It wasn't to be, though, and the one-day wonder quickly fizzled.

In early March, the stock again began to stabilize at a higher low versus its early February low, which then was retested several times over the past couple of weeks, and ultimately led to Tuesday's rally, which confirmed the higher low.

FOSL isn't out of the woods yet, but if it can manage to push past the diagonal resistance line from November and its 100-day moving average, then the long side becomes much more attractive.

Action to Take -->
-- Buy FOSL on a break above $121
-- Set stop-loss at $117
-- Set initial price target at $130 for a potential 7% gain in four to eight weeks

This article was originally published at
New Smartwatch Player is Close to Issuing a Breakout 'Buy' Signal

P.S. If you're convinced FOSL's going to push higher, there's a great way to generate income from that conviction -- while giving yourself a chance to buy FOSL at a discount. My colleague Michael Vodicka has all the details. Click here to learn more.

Serge Berger does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.

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