Winter is Here: Sell Your Boots and Buy FlipFlops

• Posted by Greg Harmon
• on November 21st, 2011

Totally backwards thinking right? But Deckers Outdoors, $DECK, the maker of Ugg Boots, and Crocs, $CROX, the flipflop maker, have both been momentum darlings at times during the year. Recently Crocs has been beaten up and falling about 40%, but Deckers Outdoors has pulled back less than 20%. Will it continue to fall? Perhaps but there are a lot of support points before it can get anywhere near a 40% move lower. But the ratio chart of Deckers Outdoors against Crocs below shows the potential for a trading opportunity. Take a look.

After the massive fall in $CROX the ratio gapped higher to 6.10. It has been consolidating there since in a descending triangle. The Relative Strength Index (RSI) of the ratio has been trending lower and the Moving Average Convergence Divergence (MACD) indicator is very negative although stalled as it hit support again. A move lower under 6.10 does not see support until the 5.00 to 5.25 area and then 4.20 with the gap fill all the way down at 4.00. This could be a great pairs trade opportunity on a move below 6.10.

Trade Idea: Buy 6 $CROX and Sell 1 $DECK on a move of the ratio under 6.05

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