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Since blasting to new multi-year highs in June, retail stocks have been wrestling with overhead resistance. But opportunity lurks amid the chop. Today we're looking at one of the better looking setups in the space with Kohl's Corporation (NYSE: KSS ).
KSS stock is flashing a low risk, high reward pattern just begging to be bought.
Let's begin with a big picture view to identify key price zones that may be masked by a smaller time frame. We're skipping the weekly and moving straight to a monthly chart.
Like a corpse, Kohl's shares have been stuck in a box for 18 years. To be fair, it's a big box and there has been plenty of flailing around. But, it has proven altogether unable to breakout. Is it any wonder why the recent rally was stopped cold at $79? It has been the threshold where all uptrends have gone to die.
When or if KSS stock ever breaches this graveyard in the sky is anyone's guess. But if it does, it will likely be a breakout for the ages.
With the significance of overhead resistance now firmly established, let's turn to the daily chart to see the pattern that caught my eye. It serves as the justification for today's focus on KSS.
In May, Kohl's shares scored a mouth-watering resistance breach that swiftly carried the shares 15% higher, since then we've seen an orderly return to the breakout point. Technicians call this a "re-test" as old resistance is now being tested to see if it turns into new support.
It's also worth noting the 50-day moving average sits in the same area so there are multiple reasons why buyers may finally emerge to halt the price decline. If they do and KSS turns higher for another upswing, this is as good a low-risk entry as any for new bullish trades.
KSS Stock Options Are On Sale … Buy Them
The implied volatility rank for Kohl's options is down at 23%, suggesting long premium plays are the way to go. If KSS can take out Friday's high ($70.79) and signal it's pivoting higher, then buy the Sep $70/$77.50 bull call spread for around $2.80.
The risk will be limited to your initial investment. If that ends up being $2.80 then the potential reward is $4.70.
As of this writing, Tyler Craig didn't hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
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