Dick's Sporting Goods, Inc. (DKS) gapped to the downside back in August on heavy volume or turnover. No big deal with the benefit of hindsight. Dick's also gapped to the upside yesterday and this price void is way more interesting. Let's look at one chart with the gap and two charts without the gap to see if it is worth paying up for DKS.
(For more on Dick's, see Jim Cramer's Dick's Sporting Goods Has the Winning Game Plan for Retailers.)
In this daily bar chart of DKS, below, we can see the gap back in August and the gap yesterday. DKS first closed above the 50-day moving average line in November; back below it in April and then gapped back above it Wednesday.
The 50-day average also closed above the 200-day average in March for a bullish "golden cross" of these two indicators. Now look closer at the volume pattern right below the price chart. Volume was strong in August with the price gap and the On-Balance-Volume (OBV) line declined. Volume was strong in November and DKS made its low.
There was another burst of volume in March and prices made a large outside day and the OBV line went vertical. Overall from November the rising OBV line signals more aggressive buying - all before the price gap.
The Moving Average Convergence Divergence (MACD) oscillator followed prices down and up the past 12 months and it is likely to cross above the zero line again soon.
In this weekly bar chart of DKS, below, the daily price gap disappears because we plot the high/low/and close from Monday to Friday. Prices are above the flat 40-week moving average line.
The weekly OBV line made a low in August and has improved over the past 10 months.
The weekly MACD oscillator is right on the zero line and is probably going to signal an outright go long position.
In this Point and Figure chart of DKS, below, we can see the breakout at $36.00 and a potential price target of $45.00.
Bottom line: With over 11 million shares of DKS sold short (last report from www.shortsqueeze.com), part of Wednesday's price gap may have been driven by shorts. I don't know for sure, but that could mean the price of DKS does not dip all that much if you are looking to buy it.
At the risk of seeing DKS moving still higher in the short-term, I would wait a few days to see if there is any dip back towards $36 - the bottom end of the gap - as buying DKS is not a problem, rather the issue is what to risk.
If there is no decline into the gap then $34 could be a good risk point for new longs. The Point and Figure chart (above) suggests $45 as a target.