Dick’s Sporting Goods – DKS Stock Is in the Bears’ Hands Now

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Sporting goods retailer Dick’s Sporting Goods (DKS) had a rough Tuesday, reporting Q1 results that missed estimates and guiding down full-year expectations. That resulted in an unsurprising beating of DKS stock, which now favors the bears for the medium term.

DKS stock Dick's Sporting GoodsSpecifically, Dick’s Q1 earnings came to 50 cents per share, missing by 2 cents, while revenues of $1.44 billion also missed the mark of $1.46 billion. That said, net income was up 8% on a year-over-year basis.

The real hammer for DKS stock holders, however, came when Dick’s revised down its guidance for FY 2014 from a prior range of $3.03 to $3.08 to a new range of $2.70 to $2.85. Consensus analyst estimates for the year stood around $3.08.

Traders and investors didn’t hesitate — DKS stock was sent down in a hurry, and it closed Tuesday 18% down to plumb a new 52-week low. Not surprisingly, Tuesday’s massacre in DKS stock also came on a massive spike in volume.

DKS Stock Charts

The situation with Dick’s Sporting Goods, for now, is thus fairly straightforward: The bears will be in control for some time to come.

In many ways, DKS stock is now in a similar spot to Whole Foods (WFM) after WFM tumbled close to 19% after the earnings announcement in early May. Whole Foods has since just chopped sideways to down and is nowhere near a constructive bottoming phase.

On the multiyear chart below, note that DKS stock reached a fresh all-time high just four months ago. After developing a lower high in March, the stock began to slip again, and Tuesday’s chopping cleanly snapped the stock’s uptrend dating back to early 2009.

DKS stock chart weekly
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On the daily chart, DKS stock also broke its lateral support band (blue box) dating back to early 2012, although given the immediate-term oversold readings, it wouldn’t be surprising to see the stock consolidate around the mid-$40s for a little while.

dks daily
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Ultimately, however, when a stock breaks a multiyear trend line with such violence, and on weakening fundamental news, at least somewhat lower price levels will be tested. The fundamental case for those finding the stock of “value” after yesterday’s beating is likely irrelevant for the near-term because emotions will continue to run high for some time.

For the active trader and investor, this translates into an opportunity to short the bounces in DKS for the foreseeable future.

Personally, I would be interested in trying the stock from the short side should it be able to bounce back toward the $45-$46 area, then target the $40 area.

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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.


Article printed from InvestorPlace Media, https://investorplace.com/2014/05/short-dks-stock/.

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