Kohl’s and Dillard’s Shares Could Add to Recent Gains

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Kohl’s and Dillard’s Shares Could Add to Recent Gains

By Alan Farley | August 9, 2017 — 11:59 AM EDT

This week’s department store earnings reports could yield buy-the-news reactions that add to gains posted since the group bottomed out in May following months of selling pressure. Tighter fiscal controls, fewer defections to online sales and speculation about the 2017 holiday season could underpin these issues, shaking out high short interest levels while working off long-term oversold technical readings.

Kohl’s Corporation (KSS) and Dillard’s, Inc. (DDS) release quarterly results prior to the Aug. 10 opening bell. They companies been evenly matched in recent years, facing identical headwinds at opposite ends of the shopping mall. Both are trading above their 200-day exponential moving average (EMA) for the first time since 2016, attracting significant bottom fishing interest, but neither has reached the hallowed technical ground needed to declare an uptrend or set off a long-term buying signal. (See also: 2017: The Year of Retail Bankruptcies.)

KSS Weekly Chart (2008 – 2017)

Kohl’s shares topped out at $78.83 in 2002 following a multi-year uptrend and fell into a narrow trading range that broke to the downside during the 2008 economic crisis. The stock found support at a 10-year low in March 2009, bounced back above broken range support in the $40s and eased into a narrow sideways pattern at the start of the decade. It held within those boundaries into a 2015 breakout that reversed just two months later at the 2002 high. (For more, see: Can Kohl’s Sales Boosting Initiatives Aid Q2 Earnings?)

Aggressive sellers took control through 2015 and into 2016, generating a steep downtrend that hit a seven-year low at $33.87 in June. Kohl’s stock bounced strongly off that level into the end of the year and resumed selling pressure after the company reported weak 2016 holiday sales. That downdraft settled just above the 2016 low, while a bounce into August has increased bullish calls for a double bottom reversal that signals a new uptrend.

On-balance volume (OBV) hit a multi-year high during the 2016 bounce and has held in the upper half of the long-term range into the second half of 2017. This resilience signals extensive bottom fishing, consistent with an improving technical outlook. Even so, the recovery faces a major challenge headed into earnings because it still has not penetrated the huge January 2017 gap between $44 and $49. The most bullish scenario in this complex price structure would unfold through a post-earnings rally gap that leaves behind a bullish island reversal. (To learn more, check out: Uncover Market Sentiment With On-Balance Volume.)

DDS Weekly Chart (2009 – 2017)

Dillard’s stock returned to the 1993 high at $52.75 in 2011 following a multi-year V-shaped pattern carved in the aftermath of the 2008 economic collapse. It paused at that level for more than six months and broke out, posting a series of new highs into the April 2015 all-time high at $144. The subsequent decline continued into the May 2017 five-year low, right in the middle of the 2011 into 2012 consolidation pattern, and took off in a bounce that confirmed long-term support in the $40s. (See also: 5 Retail Stocks With High Earnings Beat Predictability.)

The bounce off that low stalled at the 200-week EMA in the mid-$70s at the end of July, with price action easing into a sideways consolidation ahead of this week’s confessional. Dillard’s stock finally ended the string of lower highs off the 2015 peak in July, when it rallied above the 2016 swing highs in the mid-$70s, signaling the next stage in a bottoming pattern that could eventually support a new uptrend.

A buy-the-news reaction after earnings would run into steep resistance at the March 2016 high in the upper $80s, offering plenty of short-term upside, while a sell-the-news reaction could reach support at the top of the 18-month falling wedge breakout (blue lines) above $60. Volatile price action into that level could yield a higher low, but the tape may be too chaotic to profit from carefully placed pullback trades. (For more, see: Top Strategies for Mastering Pullback Trading.)

The Bottom Line

Bulls hold the advantage heading into this week’s department stores earnings flood, with the group working off long-term oversold technical readings that have lifted these struggling issues back above key support levels. (For additional reading, check out: Ailing Department Stores Grasp for Solutions.)

 

Published at Wed, 09 Aug 2017 15:59:00 +0000

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