TECHNICAL ANALYSIS: Four Retail Plays

No market sector is more vulnerable to economy dislocations than the retailers. The broad group takes the pulse of the American shopper every month, translating cash register sales into relative levels of satisfaction, apathy or paranoia. The data flow also provides Wall Street with early warning signals about changing consumer habits.

It's been a bad time lately for the sector, with growing anxiety about high gas prices and dwindling credit availability. But early reports of the consumer's permanent demise have been premature, especially with government stimulus checks still working their way through the economic engine.

Still, that positive influence will soon dry up, and retailers will need to run on their own fuel for the balance of 2008. This vulnerability means the industry could face the weakest holiday season in the last decade. This does not bode well for most publicly traded retailers, many of which have already slumped near 52- week lows.

Timing is everything in the financial markets, though, and it looks like retail Armageddon will have to wait a few more months. In the meantime, the sector is way oversold, setting up the likelihood of a recovery effort that lifts prices well off the depressed levels of the last two months.

On Monday, I checked out the retail sector as a whole, noting current trading opportunities in its most resilient stocks. Today we'll travel to the other end of the spectrum and examine four beaten-down storefronts that could turn substantially higher in the weeks ahead.

Kohl's (KSS)

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Source: eSignal

We need to zoom way out on Kohl's (KSS Quote) to understand the significance of recent price action. The stock rallied to a high at $78.82 in 2002 and lost half its value in the next two years. It recovered in early 2006 and returned to the high more than a year later. Price nosed above that level for a single bar and then rolled over.

The stock returned to long-term support in January and has carved out a potential triple-bottom reversal in the last six months. It shot off the low during last week's oversold bounce, with the monthly bar posting an 8-point range. This could mark the next step in a recovery that carries into the upper 50s before Santa takes his sleigh ride.