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.
TradeStation
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).
TradeStation
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.
TradeStation
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.
(Kohl's and Amazon are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells KSS or AMZN? Learn more now.)
(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.)
