As I scanned the charts of retailers this weekend the one of Dick’s Sporting Goods Inc. (NYSE:DKS) particularly stood out. The stock has reached a critical juncture where a break above could at least lead to a re-test of the November 2012 highs, whereas a reversal down would be good for at least 10% on the short-side.
The stock has acted well thus far in 2013 along with the broader market and remains up by 7.50% year to date. Through a longer-term lens, the uptrend off the late 2009 lows remains intact as the stock has rallied big and traded well from a technical point of view. The best way to visualize the steep multi-year ascent is by drawing a channel on the chart. From this point of view the stock would eventually need to mean-revert more before reaching the lower end of the up-trend.
In late December 2012, DKS found good support at an area which the stock treated as resistance and support all the way back to May of 2011. This now support zone is just about $1 wide, ranging from $43 up to $44. Seen another way, it likely doesn’t take too much imagination to visualize a potential head and shoulders pattern sitting on this support zone, i.e. neckline.
After finding this support zone the stock lifted higher in tune with the broader market but since mid January has now bumped up several times against the $49 mark, which also happens to coincide with the 200 day simple moving average. This has now created one of these confluence zones that I so often discuss, as the $49 area also lines up with an area of resistance between the 50% and 61.80% Fibonacci retracement levels of the swing from the November 2012 highs do the December lows.
What I am looking for to either buy a breakout past the confluence resistance zone or short a reversal lower from the confluence zone. Patience will be rewarded here as a trade will setup soon. Keep watching this chart closely.