Skullcandy, Inc. (NasdaqGS: SKUL)

Skullcandy, Inc. develops and distributes headphones and other audio accessories to retailers throughout the United States and to distributors in various countries worldwide. The company is an audio brand that reflects the collision of the music, fashion and action sports lifestyles. The company is engaged in the distribution of headphones in specialty retailers focused on action sports and the youth lifestyle, such as Zumiez, Tilly’s and hundreds of independent snow, skate and surf retailers. It distributes through consumer electronics, mass, sporting goods and mobile phone retailers, such as Best Buy, Target, Dick’s Sporting Goods and AT&T Wireless. Skullcandy products are also sold through its Website. As of September 30, 2010, its product offering had over 1,200 SKUs across a range of categories, including headphones as well as speaker docks, mobile device cases, apparel and other accessories.

Please take a look at the 10-month chart of SKUL (Skullcandy, Inc.) below with my added notations



First, you can see the obvious bottom level of support at $12 (navy) that has been tested in October, December, January and May. Next, you can see the off and on, common level at $14 (blue) that has recently acted as resistance this month.

The Tale of the Tape: The main level to watch is $12. You could buy SKUL if it comes down to $12, or short the stock if it breaks below the $12 support. In addition, if the stock rallies back up to $14 you could enter a short position, or you could buy the stock if it breaks back above $14.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!