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Trading the Dip in Dick's Sporting Goods After Blowout Earnings

Dick's Sporting Goods is down on the day, surprising investors after a blowout earnings report. Here's how to trade the stock now.

While most investors were gearing up to head into the holidays and then into the Black Friday weekend, a handful of retailers have been busy reporting earnings. That includes Dick’s Sporting Goods  (DKS) - Get Dick's Sporting Goods, Inc. Report, which has fallen about 3.2% on the day.

The company joined other reporting retailers like Abercrombie & Fitch  (ANF) - Get Abercrombie & Fitch Co. Class A Report, Burlington  (BURL) - Get Burlington Stores, Inc. Report, Best Buy  (BBY) - Get Best Buy Co., Inc. Report (which is holding key support) and Dollar Tree  (DLTR) - Get Dollar Tree, Inc. Report, which is hitting new 52-week highs on the day.

As for Dick’s, the reaction isn’t a disaster, given that the stock is still up 340% from the March lows. Further, shares were up 15.6% from this month’s low ahead of earnings as investors anticipated a solid quarter.

The company reported a 23% jump in revenue to $2.41 billion, which easily beat estimates, while earnings of $2.01 a share crushed expectations of $1.08.

Same-store sales surged 23.2% and easily beat expectations of 13%, while online sales almost doubled year over year. On top of all of that, Dick’s Sporting Goods named a new CEO.

The strength in the report was truly stunning and it’s got investors looking to buy the earnings dip. Let’s look at the charts.

Trading Dick’s Sporting Goods

Daily chart of Dick's Sporting Goods stock.

Daily chart of Dick's Sporting Goods stock.

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On the chart, you can see how the prior two earnings reports - in late May and late August - propelled the stock higher with a large gap-up rally.

More recently though, shares dipped back below $60 after hitting a fresh all-time high of $63.29 in October. The 50-day moving average failed as support, while the 100-day moving average acted as support earlier this month.

So far, the stock is being rejected by $60 and the 50-day moving average. This price action would be less surprising — since these levels failed as support a month earlier — if it didn’t come on a very strong quarterly report.

It leaves bulls in a decent position, particularly now that Dick’s Sporting Goods stock is fetching a bid after filling its small gap from last week.

Bulls can either look to buy the breakout, which would be on a move over $60, or on a dip.

If they take the breakout trade, they can target the current high up at $63.29. Above that puts the 161.8% extension in play up at $69.99 — call it $70.

On the downside, I’m looking for a dip down to the 100-day moving average. Should it fail, it puts the $47.50 to $50 area on the table. The latter of that range is the post-earnings low from the previous report, while a drop to $47.50 will fill the most recent gap.