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Dick's Sporting Goods Shares Break Out - Here's the Trade

Dick's Sporting Goods is ripping higher after better-than-expected earnings. Here's how to trade the retailer's stock.

Dick’s Sporting Goods  (DKS) - Get Dick's Sporting Goods, Inc. Report stock is ripping higher on Wednesday, up about 14% on better-than-expected earnings.

It should have been more obvious to investors that consumer demand was through the roof given the limitations of covid-19. 

With many gyms closed and with consumers looking to distance themselves from others, at-home workout options became increasingly more attractive.

Combine that with the momentum we’ve seen in Peloton  (PTON) - Get Peloton Interactive, Inc. Class A Report — and throw in Apple  (AAPL) - Get Apple Inc. (AAPL) Report wanting to join the at-home workout subscription business — and the prospect that Dick’s would have a solid quarter made even more sense. 

Earnings of $3.12 a share annihilated analysts’ estimates for $1.26 of profit. Sales of $2.71 billion easily beat expectations for $2.46 billion. Revenue grew 20% year-over-year as a near tripling of e-commerce sales helped fuel the big beat.

The numbers highlight just how strong a quarter it was. What do the charts tell us going forward?

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Trading Dick’s Sporting Goods Stock

Daily chart of Dick's Sporting Goods stock.

Daily chart of Dick's Sporting Goods stock.

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Dick’s Sporting Goods stock traded up to resistance near $48 ahead of earnings. Not only has this mark been resistance for the past month, it was also resistance in January before the stock topped out and pulled back.

After slowly grinding its way back toward these highs, bulls are being rewarded with Tuesday’s breakout.

From here, the setup is straightforward. The bulls want to see whether Dick’s Sporting Goods stock can push higher up to the 123.6% extension at $56.83. It's worth pointing out that the prior all-time high from 2016 is within a penny of this level, too, at $56.82 (on a dividend-adjusted basis). 

A move above that mark, however, opens the door to the 138.2% extension near $62, and eventually could put the 161.8% extension in play near $70. 

Ironically, on an unadjusted basis, the prior all-time high comes into play near the 138.2% extension.

I wouldn’t necessarily expect these two targets to be in play by the end of the week, but if the shares maintain upward momentum, they could be targets in September and in the fourth quarter.

The downside is also pretty straightforward. If a decline is in the cards, the longs will want to see prior resistance near $48 hold as support. Seeing this type of price action is a bullish development — even in the face of a decline.

Below $48 and we’ll need to reevaluate the stock.