KORS Forming Double Bottom Base?

Market corrections serve a productive purpose other than giving you a tax write-off: they help leading stocks form basing patterns. These consolidations allow institutions to build positions in a stock as weaker holders get out, readying it for another potential run higher.

Michael Kors (KORS) is forming such a consolidation. Not all consolidations are created equal. Some actually show distribution, meaning institutions may quietly be dumping shares within a price range. Detecting this takes a closer look at the daily and weekly price and volume action of a stock.

KORS so far suggests slightly more distribution than accumulation, although it isn't alarming (and for me is a secondary indicator). Also, it is still winding its way through its current pattern, so there is time to increase accumulation. Look for volume spikes as it builds the right side of this double bottom.

In the weekly chart below, the arrows point to each bottom of the base. We may be in the middle of forming the 2nd bottom.

KORS has solid fundamentals, with 87% EPS growth in the most recent quarter, and 68% sales growth. These are fantastic numbers you want to see. The only downside is that the EPS numbers have decelerated for two quarters in a row and actually show a negative number only four quarters ago, suggesting some lumpy/bumpy action.

Its 83% return on equity and projected 84% earnings growth this year are exactly the kinds of numbers you want to see. Supporting secondary criteria are encouraging as well such as the 15% growth in the number of funds taking positions in the stock and the decent cash flow, which is helpful in serving its debt load. KORS also has a 96 relative strength rating, as reported by the Investor's Business Daily, meaning it has outperformed most stocks, a key ingrediant to going higher.

The industry group KORS is in, Apparel-Clothing Manufacturing, is a bit of a dog, however. Although there are a couple other decent stocks in this group, the technical performance of the group has lagged of late, ranking as number 98 in IBD's 197 industry group rankings. Sometimes it takes a strong move in a leading stock to get the group moving again. It bears watching as industry group performance helps determine the appreciation of a stock.

KORS sells high-end apparel, accessories and footwear and appears to be well-run. Also, management owns 13% of shares, indicating those who run the company have a heavy interest in seeing the stock price appreciate.

Another feature I favor in this stock is that it's relatively new to the stock market, having become publicly traded last December. Research shows winning stocks make their big runs in the early years of their going public.