The Boohoo share price has rebounded strongly in the past three days as investors rush to buy the dips. The BOO stock is trading at 205p, which is about 16% above the lowest level since last week. On Monday alone, the shares jumped by more than 8.59%.
BOO recovery trade
The BOO share price has been in a major sell-off in the past few months. The stock has fallen by more than 52% from the highest level last year. This decline has pushed its total market capitalisation to more than £2.6 billion.
There are several reasons why the share price has crashed. First, the stock tumbled after the company was accused of weak labour practices in Leicester. Since then, the company has spent millions of pounds defending itself and changing its business practices. In all, despite all these measures, some investors are still worried about investing in the company.
Second, the Boohoo share price has declined because of the perception that its growth will slow as the UK and US economies reopen. Analysts expect that many people who shopped online last year will start to re-embrace going to physical retailers. However, Boohoo bulls expect that most of the online shopping demand that happened during the pandemic will stick even as the economy reopens.
Third, the company, together with other fashion retailers are facing rising costs. For one, the price of cotton and other raw materials has jumped to the highest level in more than a decade. Labour costs are also increasing in its key markets. At the same time, the ongoing supply-chain disruptions are affecting the company’s performance and its margins.
In a statement this month, Boohoo said that its sales were slowing and that its costs, including marketing, were rising. It reported that its pretax profits declined by 64% to £24.8 million in the first six months of the year.
Therefore, the Boohoo share price is sliding as some investors rush to buy the dips. They believe that the most of the challenges that the company is facing have already been priced in.
Boohoo share price forecast
The daily chart shows that the Boohoo share price has been in a deep sell-off recently. The stock has crashed by more than 45% from the highest level this year. A closer look shows that it managed to move below the key support at 215p, which was the lowest level on October 19th.
Now, the stock is trading at 205p as investors attempt to buy the dip. However, this pattern is known as a break and retest. It happens where investors attempt to retest the previous resistance level after a breakout.
Therefore, there is a likelihood that the stock will resume the downward trend in the near term. This view will be invalidated if the price moves above the key resistance level at 220p.