Trade idea 26/1/24: short Levi Strauss
With an indication that jeans maker Levi Strauss is expected to open down, IGTV’s Jeremy Naylor looks at the downside support targets.
Using Elliott wave and a building head and shoulders pattern the technical analysis suggest that there is a price target down at the lows seen in October 2023.
(AI Video Summary)
Levi Strauss reveals some disappointing financial news
Levi Strauss, a well-known clothing company, recently reported that their earnings were not positive, and as a result, they are planning to cut about 15% of their corporate workforce to improve efficiency. One of their biggest challenges is dealing with rising costs, but unfortunately, they can't pass these costs onto their customers. All of these issues are expected to cost the company between $110 million and $120 million. On top of that, their earnings outlook for the next quarter is also lower than expected.
Elliott wave pattern observed
If we take a look at the share price chart, we can see something called an Elliott wave formation. This essentially means that there are five waves up and down on the chart. The third wave is the longest, and the fourth wave doesn't go below the high point of the first wave. The last wave reached a high of $17.25, and since then, there has been a smaller corrective wave, causing a slight gap in the chart.
Some analysts predict that Levi Strauss shares may drop by around 6% when the trading day begins. If this happens, it would confirm a pattern called a head and shoulders. If the closing price of the candlestick chart is below the line that connects the shoulders, then we can measure the height of the head and replicate it downward from the break. This could potentially lead to the shares dropping to the lows seen in October of the previous year, when the company struggled with the increasing price of raw materials.
While there have been some improvements since then, it's still possible that the shares might go even lower, especially if there's a 6% loss in shares on the given day. This could mean that the shares drop to around $12.50. All in all, things aren't looking great for Levi Strauss shares, and it might be worth considering a shorting opportunity with a stop at around $16. The stock is expected to open at $15.47, and there's a chance it could drop all the way down to $14.78.
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