Is Kohl’s Setting Up for a Breakout or a Breakdown?

Kohl's is shaking off a downgrade on Tuesday but the charts are still mixed. Here's what bears and bulls should watch for in the stock.
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Shares of Kohl’s  (KSS) - Get Report were jumping earlier Tuesday but have pared those gains down to just 0.2%.

The fact that there’s any gain on the day is impressive, given that shares were trading lower in the premarket session following a negative analyst note. Jefferies analysts downgraded the stock to hold from buy and lowered their price target significantly, to $52 from $65.

Given the action, Kohl’s is a worthy pick for Real Money’s Stock of the Day.

Despite strong holiday retail sales, department store stocks in general have struggled as brand-specific companies - like Lululemon Athletica  (LULU) - Get Report and Nike  (NKE) - Get Report - and e-commerce continue to dominate.

In November, Kohl’s plunged more than $10 a share o sub-$48 in rapid fashion. Since then, it’s been trying to carve out a bottom and make its way higher. Let’s look at the charts.

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Trading Kohl’s Stock

Weekly chart of Kohl's stock. 

Weekly chart of Kohl's stock. 

Above is a weekly chart of Kohl’s stock, which lays out the struggles that it’s had over the past 15 months or so, dating back to the fourth quarter of 2018. It also highlights the November 2019 plunged that sent shares from $58.46 down to a low of $44.90 a few weeks later.

However, a few other marks become evident too. The first two things that jumped out to me where downtrend resistance (blue line) and support near $45 (black line). Further, an uptrend support mark (purple line) has developed from the summer lows.

Each major rally ends with a test of downtrend resistance, which swats the stock lower. Since May though, $45 support has risen to the occasion, as buyers elevate the stock price from this area. Currently, shares are also holding up over the 200-week moving average.

So what needs to happen now?

Bulls need to see the 200-week moving average and uptrend support hold firm. Below the latter and a retest of $45 is on the table. While the stock has been below this mark at various times throughout 2019, below $45 could drop shares into no man’s land. The risk simply is worth the reward below this mark.

On the upside, we need to see shares push through recent resistance at $51.50. Above that puts the 50-week moving average and downtrend resistance on the table. Over downtrend resistance could trigger a breakout and many bulls may prefer to wait for that clarity before getting long. 

Keep it simple: Over uptrend support and a test of downtrend resistance could be in store. A move through either trend line could trigger a continued move in that direction.