Stock Of The Day: Deckers Outdoor Tests Critical Level — Bounce Or Breakdown?

Shares of Deckers Outdoor Corporation DECK are getting decked in Friday's trading session, with shares down over 18%. This is despite posting what appears to be an excellent earnings release.

If the shares continue to decline, there is a good chance they will find support around $182.25. This level has been important. It is why DECK is our Stock of the Day.

Decker's reported 3Q sales of $1.83 billion. Analysts were looking for $1.73 billion.

Earnings were also well ahead of estimates. They came in at $3 per share. The Street was looking for $2.56.

The company also forecast full-year earnings to be $5.75 to $5.80. This is well ahead of the prior outlook of $5.15 to $5.25.

So why are the shares down?

One reason could be possible concerns over the company's inventory buildup. It grew from $474,311,000 to $576,669,000. This is an increase of more than 20%.

Inventory increases can be a troubling sign for a retailer. Things that don't sell can end up in inventory. A company may have to eventually reduce the sale prices or take a writedown. This could be a bearish signal for the long term.

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Regardless, if DECK drops to levels around $182.25, there is a chance the sell-off ends. A reversal and rally may even follow.

You can see on the chart that this price was resistance last June. Sometimes levels that had been resistance can turn into support and that could be the case here.

Many of the traders and investors who sold in June were happy they did so when the price dropped. But in November, the resistance was broken, and DECK moved higher.

When this happened, some of the previously happy sellers came to think their decision to sell had been a mistake. Many of these regretful sellers decide that they will repurchase their shares. But they will only do so if they can reacquire them for the same price they were sold.

As a result, if DECK gets to around $182.00 there will be remorseful sellers placing buy orders. If there are enough of them, the level that has been at a peak or resistance will convert into support.

This could put a floor under DECK. It could also be the first step of a new uptrend.

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