Coty Bottoming Coming To An End, But Hold (Technical Analysis) (NYSE:COTY)

Sector and Industry Performance

As for the 1-month relative performance, the Consumer Defensive sector has been an average performer. The sector has returned a loss of nearly 3%, in its defense (pun intended), all sectors have done poorly.

The 1-week return of the Consumer Defensive sector has been still not pretty. Defensive companies have underperformed poorly in aggregate with a negative return of around half a percent, but not as bad as Energy which went down by nearly 2%.

On the level of the Consumer Defensive sector, the Household & Personal Products industry where Coty Inc. (NYSE:COTY) was amongst the winning groups with 1.69%, after Education & Training Services (people re-skilling to become financial analysts??).

On the 1-week return basis, Household & Personal Products are still in the green, with a small return of 0.24%.

Peers and relative performance

Although Seeking Alpha indicates Newell Brands Inc. (NWL) and Inter Parfums Inc. (IPAR) as peers for Coty, those two companies do not have revenues comparable to Coty’s (TTM $5.32B). Therefore, I went up the capitalization scale and selected The Clorox Company (CLX) and Church & Dwight (CHD), which both have revenues in single-digit billions of dollars ($7.04B and $5.31B, respectively).

As can be seen below, Coty outperformed the competitors by single-digit percentage points, while the market (represented here by S&P 500 index) fell somewhere in the middle. The returns were as follows: -15.84% for Coty, -19.93% for Clorox, -20.11% for Church & Dwight, and -18.69% for the market.

On the 3-month timescale, Coty outpaced the competition and the market by a wide margin, having returned nearly 29%.

Explanation of My Technical Analysis Toolbox

I will analyze Coty from a perspective of a number of technical analysis tools and show the screenshots on the monthly, weekly, and daily Heikin Ashi candles charts – each timeframe presented through two separate sets of indicators – which I will complement with a simplified daily Renko chart.

The first chart setup (I will call it Chart 1) uses Bill William’s Alligator indicator and Awesome Oscillator, as well as Ichimoku Clouds and On Balance Volume indicator line. For fundamentals, I show the quarterly revenue trend which I use for quick visual triage.

The Alligator technical analysis tool uses three smoothed moving averages that are based on thirteen, eight, and five periods, called also Jaw (blue line), Teeth (red line), and Lips (green line), respectively. Due to the smoothing of each moving average, the Jaw makes the slowest turns and the Lips make the fastest turns. The Lips crossing down through the other lines signals a short opportunity while crossing upward signals a buying opportunity.

William’s Awesome Oscillator (AO) is a market momentum tool that visualizes a histogram of two moving averages, calculated on median prices of a recent number of periods compared to the momentum of a larger number of previous periods. If the AO histogram is crossing above the zero line, that’s indicative of bullish momentum. Conversely, when it crosses below zero, it may indicate bearish momentum.

As for the Ichimoku Cloud – I am not using a full set of lines of Ichimoku lines, only the Leading Spans A and B, whose crosses dictates the color of the cloud and whose individual lines provide levels of the strongest support and resistance lines. Ichimoku averages are plotted into the future which in its own right provides a clearer picture but have no predictive powers.

On-Balance-Volume (OBV) indicator is a volume-based tool and is supposed to indicate the crowd sentiment about the price. OBV provides a running total of an asset’s trading volume and indicates whether this volume is flowing in or out, especially when viewed in divergence with the price action.

The second chart setting (Chart 2) uses 2 moving averages (10- and 50-period), volume, and volume’s 20-period average. On the screenshot from top to bottom, you will see the Composite Index Divergence Indicator (CIDI), which I learned from the book of Constance Brown, as well as J. Welles Wilder’s Directional Movement Indicator (DMI). I also use MACD (Moving Average Convergence Divergence) which is well known to everybody: I seek crossovers of MACD and signal, as well as above/below the zero level.

CIDI comes from a combination of RSI with the Momentum indicator. For more literature, see Brown’s paper or read her book. CIDI has been developed to solve the problem of RSI not being able to show divergence. I personally use the CIDI’s crossover above and below its slow and fast-moving averages, as well as the position of the averages against each other.

As for DMI, I skip the ADX line because it doesn’t give me anything. Instead, I focus on the crossovers of the Positive Direction Indicator DI+ and Negative Direction Indicator DI-. When the DI+ is above DI-, the current price momentum is upwards. When the DI- is above DI+, the current price momentum is downwards.

On the use of Heikin Ashi candles and Renko boxes, I use them as tools for trend reversal and continuation identification. Renko charts do not have a time scale and they are built on price movements that must be big enough to create a new box or brick. Similar to Heikin Ashi, Renko charts filter the noise.

As you might have guessed, my focus is on identifying the trend reversal and filtering the noise that allows the position continuation without the risk of too many false signals. However, I will be honest with you – I am not showing here all the technical indicators that I use for screening and analysis since they belong to my secret sauce.

The Long-Term Trend

For the long-term trend analysis, I use monthly charts. See below Chart 1, where we can appreciate a number of positive technical signals. The first one is the green monthly Heiking Ashi candle, the third one already in the current trend. The second positive sign is the cross-over of the green line of the Alligator’s Lips above the red line of the Teeth. The Teeth line also is assuming the position ready to cross over the blue line of the Jaw. Awesome Oscillator is still at low levels but it has been in the positive territory already for a while. Only OBV has not picked up yet in any significant way, either the Ichimoku Cloud turned green. However, the latter has narrowed and the lower edge is rising; presaging the upcoming change of color to green.

On Chart 2, we see that the 10-month Moving Average, although still below the 50-month MA, has flattened and made a wide U-turn. CIDI has crossed both of its averages (fast green and slow orange) and the fast average has flattened as well with a slightly upward direction. The monthly MACD has crossed over its signal, however, both are in the negative territory close to the zero line and presaging the cross over the very zero line within the next 2-3 months or earlier. DI+ is now converging with the DI- from below, with a high probability of crossover and the signal of the uptrend starting.

The Mid-Term Trend

As we can notice in Chart 1, the Ichimoku Cloud is narrowing and approaching the crossover and the change of color to green. The Alligator lines are all in the positive set-up with all the crossovers taken place. Awesome Oscillator is positive and rising (green bars), while OBV has been rising since October. I have drawn additional S/R lines on the levels of $7.80 (orange) and $9.30 (blue) which constitute according to me a strong band of narrow trading. Breaking over the $9.30 level will be a very positive signal.

On Chart 2, we can appreciate that the 10-week MA and 50-week MA are converging on the level of the orange S/R line and the 10-weekly is crossing above the 50-weekly. For the confirmation of the uptrend, the 50-week MA should better not dive too much below the orange line or at all. CIDI has strongly crossed above both averages, fast is above slow as well. MACD and its signal have just crossed the zero line and the DI+ has created a wide distance above the DI-. Here all the technical signals are positive. However, I would expect a slight return to the support line at $7.80 in the coming weeks.

The Short-Term Trend

As we can see on Chart 1, Ichimoku Cloud is in green and rising, Alligator’s lines are in a positive set-up and rising, AO is in a positive value, and the OBV slightly rising. I would expect the reaction on the resistance line and a slight correction to at least $8.40 in the daily timeframe.

As for the picture on Chart 2, all the technical signals are positive but finally we see a signal for the upcoming correction by the looks of CIDI which is making a downward-facing U-turn.

Price Momentum

The daily Renko chart presents an upcoming cross-over of the 10-box MA over the 50-box MA (on the level of the previous orange horizontal line which I removed for better visibility). The MACD has crossed the zero line and the signal is approaching the zero line. The last time the MACD and the signal crossed this level from below was (for MACD) in November 2020 ) – see the yellow vertical line.

Conclusions

Technically, Coty should be still trading for a couple of weeks in the band between $8-9 but with momentum ready for a breakout. The stock will be recovering from a very big multi-year correction but this is also a positive – the overhead supply from the institutional owners who waited to dump the stock should have been removed by now and the resistance should not be too violent when the stock starts climbing to the levels from 2018 and 2019.