Looking to Pounce on Kohl's

 | Feb 27, 2012 | 11:00 AM EST  | Comments
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Stock quotes in this article:

kss

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dds

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fdv

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rcd

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When I see a shift in pattern on any chart, that's often my tip-off to watch for a trading opportunity on a pullback. Let's go over a recent example -- Dillard's (DDS) -- so I can show you what I'm referring to.

On the daily chart below, I've illustrated where Dillard's took out its Dec. 27 swing high of $46.28. That move shifted the stock from a bearish pattern of lower lows and lower highs to higher highs and possibly a higher low -- which is precisely why I watched the next pullback for a buy entry.  When that pullback came, the stock ended up holding key support, and a buy trigger fired off. Since then, Dillard's has seen a rather dramatic rally.

Dillard's (DDS) -- Daily
Source: Dynamic Trader

Now, let's take a look at another stock that's moving in a similar pattern: Kohl's (KSS), a significant component of such ETFs as First Trust Strategic Value Index Fund (FDV) and Rydex S&P Equal Weight Consumer Discretionary (RCD). Of course, the mere fact of this similarity does not mean we will definitely see Dillard's-style action in Kohl's. Still, patterns often repeat themselves, so the stock is certainly worth watching for a buy signal.

On Feb. 3, Kohl's shares took out their Jan. 19 swing high of $48.83. A bit of a rally followed this breakout, and now we are seeing a pullback to the recent Feb. 1 low. If this last low is any good, then the rally in this stock should ideally resume on a pullback to that level.

Kohl's (KSS) -- Daily
Source: Dynamic Trader

In looking for buy zones, there are two areas of support in which I'm interested: $48.06 to $48.94 and $46.80 to $47.45. I plan to take buy triggers using a 30-minute chart and the method described in my prior piece on trades and triggers. However, keep in mind that this trade setup will be negated if the price breaks below the Feb. 1 low of $45.47.

So let's stalk this stock in the coming sessions and see if this scenario starts to play out. If it does, that'll give us a reason to place a bullish bet on this name.

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