Is CROX a Stock with Too Many Holes?

Crocs Inc. (NASDAQ:CROX) is a great stock to watch right now, particularly after having been walloped in recent weeks. Whenever this occurs, it�s always fun to see who thinks the stock is going to zero and who thinks it�s a screaming buy.

One Web site currently has an article asking if a second �shoe� is waiting to drop, while another claims that CROX is too cheap to ignore right now. �Personally, I don�t think another shoe is waiting; I think the same shoe will continue to wear out the soles of this stock.

And if you subscribe to the theory that a stock is a buy, simply because it�s cheap right now, you only have to look at the recent �Oops� of none other than James Cramer, who was practically shouting and pounding the table on CNBC for people to buy Netflix (NASDAQ:NFLX) THE DAY BEFORE IT COLLAPSED FROM $120 TO $77!

CROX has been in an overall downtrend since August, with a half-dozen lower highs and lower lows being made. But with earnings due out tomorrow after the closing bell, is now the best time to pick up some shares, or does this stock still have too many holes in it?

Let�s see what clues we can pick up from the chart below:

Chart courtesy of stockcharts.com

The Bullish Case � Is its Recent Buy Signal Still in Play?

Taking the bullish case first, there are certainly some positives to note. Looking at indicators such as the Relative Strength Index (14), Moving Average Convergence/Divergence and the Full Stochastic, we can clearly see that CROX is greatly oversold. (The stochastic is below 10 and the RSI is at 30, which are key levels.)

Yet, the crossing of the %K (black line) over the %D (red line) is normally an indication that a reversal to the upside is near. Of course, it is more prudent to wait until the black line has crossed above 20 before purchasing a stock based on the Stochastic.

We also have an RSI that has generated a buy signal as it crossed above 30 recently. But that didn�t stop CROX from being smashed on Monday of this week.

While the MACD is still declining and in sell mode, there appears to be a slight divergence going on between the histogram and the MACD lines that would seem to indicate better times are ahead. In recent days, the histogram bars have been rising while the lines continue lower.

The Bearish Case � Is it Time to Walk Away from Crocs?

Yet, we have to remember that oversold, just like overbought, does not mean �over.� CROX was rather weak on the down market day Monday, dropping more than 4%.

Two more negatives are the recent large gap down, from $26 to $17 on very heavy volume following a bad earnings pre-announcement, and the stock crashing through its 200-day moving average.

I think the best that can be said for CROX right now is that it may try to fill that gap, and retrace part of the recent bearish move. It�s playable for short-term traders, but the risk is about even with the reward. It�s also likely that the 200-day moving average will begin to turn lower, which will set up overhead resistance.

When a stock has been beaten down, the Street can sometimes ignore a mediocre earnings report, and a good report can send the stock screeching higher. But CROX, which has beaten earnings estimates in several consecutive quarters, is definitely not acting like a stock that is about to have a stellar earnings report.

However, another factor is that the general stock market is somewhat overbought right now, and I don�t see CROX as likely to buck the trend if the market begins to head lower.

The Contrarian View

Even though the bearish case seems to outweigh the bullish (if only slightly), if you�re into speculative plays you may want to bet on Crocs right now. A small number of inexpensive call contracts could produce a nice ROI if the earnings report is favorable (or simply not terrible), since the stock is so oversold right now.

In all, if the rising tide lifts all boats, CROX right now is still a bit of a dinghy. But unless we get the mother of all earnings reports tomorrow, I would look elsewhere for my yacht.