This morning, retailer Kohl's Corp (KSS) slumped by about 3% in pre-market trading. Kohl's beat estimates for second quarter earnings ($1.76 vs. an estimated $1.64), revenue ($4.57 billion vs. an estimated $4.27 billion), and same store sales, which increased by 3.1% vs. estimates of 2.6%. The company also raised earnings estimates for the full year.
This is a very solid quarter, and retail stocks in general are on fire. Kohl's has other positives that we'll examine. So why was the stock pulling back? The stock has already had a tremendous run in anticipation of this report. On the technical side, Kohl's is pulling back from a huge resistance level.
On the monthly chart, we can view the past 20 years of activity in this stock. Over that time, Kohl's has had tremendous difficulty getting above $80, failing in 2001, 2007, 2015, and so far, 2018 (arrows). Will this be the year it finally breaks through? Once $80 is finally broken, this stock should fly.
As we zoom in to the weekly chart, we see a large double bottom pattern (semicircles) and a subsequent breakout. This led to Kohl's current uptrend, represented by a series of higher lows (HL) and higher highs (HH), which form a bullish channel (parallel lines). Kohl's 50-week moving average (blue) crossed above its 200-week moving average (red) back in May, forming a golden cross (shaded yellow).
Remember when retail was the most hated sector on the street? Now it's the sweet spot. Take a look at the S&P Retail SPDR (XRT) . This exchange-traded fund is in a fierce uptrend (parallel lines), and just reached a ten-year high.
Could it be that Kohl's quarter was even better than it seemed? Just take a look at the retailer's inventories, which were reduced for the tenth consecutive quarter. Kohl's inventories are lean and mean, which provides the company with flexibility.
Some Kohl's stores serve as a return point for Amazon (AMZN) , and the company is expanding its relationship with the online retail kingpin. According to Chuck Grom, retail analyst at Gordon Haskett, Kohl's locations that accept Amazon returns have seen a 13.5% increase in foot traffic.
The Bottom Line: Kohl's is a strong stock, within a strong sector, within a strong market. The fact that the stock is down today is fairly irrelevant. Kohl's looks good according to both technical and fundamental analysis, making today's sell-off a buying opportunity.
(Ed Ponsi''s article originally appeared on Real Money Pro at 11:14 a.m. ET on Aug. 21. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)