Despite the brutal month for the broader U.S. stock market in January, there were some green shoots both in absolute and relative terms. Not surprisingly, some of these green shoots came in somewhat defensive areas such as utility stocks and discount retailers such as Wal-Mart Stores, Inc. (NYSE:WMT) … but also in the mix is Kohl’s Corporation (NYSE:KSS).
After exhibiting relative weakness in 2015, these stocks began forming better near- to medium-term technical bottoms and now look set to continue the relative strength for the near-term.
While each single-stock story has its own twist and the broader retail industry stocks are still lower for the year, WMT stock is higher by 10% on the year and KSS stock is up 3%. This compares favorably in both relative and absolute terms versus the S&P 500, which is lower by 5% still this year.
To be clear, in the bigger picture for 2016, I believe volatility will continue and that any sector or group still has good potential to see lower lows before a bottom is in. As such, this relative strength play in KSS stock (and other retailers) remains contra-trend, structurally speaking.
Also note that Kohl’s Corporation and many other retailers are scheduled to report their latest earnings in coming weeks. So, from a risk management perspective, position size should remain moderate, and remember that trades are trades — you don’t have to hold them through earnings announcements.
Moving on to the charts …
Kohl’s (KSS) Stock Charts
On the long-term weekly chart, we see that KSS stock a) is no stranger to sharp selloffs and indeed has seen at least three of the variety since the year 2001 and b) as a result of the 2015 selling pressure has arrived at multiyear horizontal support in the low $40s. From a momentum perspective, also note that the Relative Strength Index at the bottom of the chart last autumn reached its most oversold reading ever.
Ever is a long time and thus should be respected (if coupled with the technical support areas) as a place where at the very least a significant oversold bounce could occur.
On the daily chart we see that since reaching a low last November, KSS stock has since posted two marginally higher lows, worked above its 50- and 100-day simple moving averages and has well-defined horizontal resistance around the $49.50 mark to overcome.
Very near-term, Kohl’s also has diagonal resistance (red dotted line) as a measuring tool.
Simply put, if the stock can overcome the $50 area on a strong daily closing basis, then multiweek upside into the low to mid-$50s could result quite quickly.
Active investors and traders would however also need to respect any break below the $47 area at the latest as a sign of further weakness and thus stop out of any longs.
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