Kohl's Shares Face Technical Fork in the Road With Earnings

NEW YORK (TheStreet) -- Shares of discount department store Kohl's (KSS) will face a test on Thursday when the company reports earnings.

Since hitting an all-time intraday high of $55.14 on April 6, the stock has fallen about 7%. It fell as much as 11% from the high to $70.90 on April 30. Previously, it had risen 31% from its 200-day simple moving average of $55.14 on Nov. 5 on a pair of strong earnings reports.

The shares are below their 50-day simple moving average of $75.08 with a weekly chart that will shift to negative if the stock should close the week on Friday below its key weekly moving average of $74.06.

Analysts expect Kohl's to report earnings of 57 cents a share for its fiscal first quarter ended in April. Some analysts say that the retailer improved its product mix and increasing same-store sales should push the shares higher. Stern Agee gives Kohl's a buy rating and a price target of $85. The reaction to earnings is thus a tug-of-war between bullish fundamental calls, and potential negative technical charts.

Let's look at the daily and weekly charts for Kohl's and provide the key technical levels at which to buy on weakness and the key technical levels at which to sell on strength.

Investors not familiar with technical analysis should begin with the notion that a price chart for a stock shows a road map of past price performance, which provides guidance for predicting future share-price direction.

Here's how to read a daily chart. There are two moving averages to follow; the 50-day simple moving average is in blue, while the 200-day simple moving average is in green.

Here's how to read a weekly chart. This chart shows weekly price bars going back to the beginning of 2007 and thus includes the crash of 2008, and then the current bull market for stocks that began in March 2009. The red line tracks the ups and downs of the key weekly moving average. The green line is the 200-week simple moving average. The red line that oscillates along the bottom of the chart is the momentum reading on a scale of 00.00 to 100.00. A reading below 20.00 is oversold and a reading above 80.00 is overbought.

A technically positive weekly chart occurs when a stock ends a week above its key weekly moving average with the momentum reading rising above 20.00.

A technically negative weekly chart occurs when a stock ends a week below its key weekly moving average with the momentum reading declining below 80.00.

Here's the daily chart for Kohl's.


Courtesy of MetaStock Xenith

Kohl's closed $74.30 on Tuesday for a gain of 22% year to date with the stock 28% above its 2015 low of $58 set on Jan. 20. The stock is 6.7% below its all-time intraday high.

The stock has been above its 200-day simple moving average since Nov. 5, and it's way above its 200-day simple moving average now at $63.59 but needs to trend above its 50-day simple moving average of $75.08 on a positive earnings reaction.

Here's the weekly chart for Kohl's.


Courtesy of MetaStock Xenith

The weekly chart would shift to negative if the stock closes on Friday below its key weekly moving average of $74.06 as its projected momentum reading of 66.00 is down from 73.64 last week.

Investors looking to buy Kohl's should place a good-till-canceled limit order to purchase the stock if it drops to $63.08, which is a key level on technical charts until the end of June.

Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $75.44, which is a key level on technical charts until the end of June.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stock mentioned.

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