Maligned retailer Sears Holdings (SHLD) has made it on my radar again thanks to increased news flow around the country … and the fact that SHLD stock is trading at a critical technical juncture.
As part of continuing efforts to bring Sears back into better shape, on March 14, Sears announced that its board of directors approved the separation of its Lands’ End business by means of a pro rata spinoff transaction. The way the deal was structured, Sears stockholders received 0.300795 shares of Lands’ End common stock for each share of SHLD stock held as of 5:30 p.m. that day. Sears shares are trading roughly 5% higher since.
Earlier this week, it was reported that controlling shareholder Eddie Lampert has cut his holdings of Sears’ short-term debt (a form of funding for the company), as the retail chain continues to burn through cash. While SHLD did initially react negatively to the news on Monday, it (somewhat surprisingly) rebounded in short order.
The aforementioned headlines around Sears illustrate the rather two-sided news flow around the company. Because this is in sync with the make-or-break area at which Sears stock is trading, an opportunity could arise soon.
SHLD Stock Charts
On the multiyear chart looking back to 2001, I added Sears’ 200-day (red) and 50-day (blue) simple moving averages. Note how the two MAs have largely moved in the middle of the band in which the stock traded during this time span. This is simply a function of the fact that SHLD stock hasn’t trended much, but instead has moved in a choppy, sideways fashion.
However, if we look a little more closely, we see that often times when these two moving averages traded closely together or crossed each other, SHLD stock either found resistance/support and turned back down/up, or it acted as an acceleration area where the stock then quickly pushed through. Either situation has allowed active traders to take advantage of the situation and led to profitable trades.
On the closer-up chart, we can see that SHLD stock has once again arrived at one of those critical junctures where the 100- and 200-day MAs are converging, and this time the confluence area is also matching up with a 50% retracement of the November 2013-February 2014 selloff.
This makes for a rather straightforward trade setup. If the stock pushes past this resistance area — say, past the $50 level on a daily closing basis — then SHLD stock stands a good chance of continuing higher into the mid- to high $50s.
Alternatively, if the confluence zone ends up being able to hold its own and stand as resistance, then quicker traders could short the stock below the $44 area for a move back into the mid-$30s.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
