DataTrader: Is Dillard’s Month-Long Rally Almost Done?
While a number of retailers are trading sidways to lower ahead of trading on Monday (see Nordstrom (JWN), Abercrombie & Fitch (ANF), and Sears Holding (SHLD) for just a few examples), there are a few sources of strength that may give traders and investors in the sector a measure of confidence in a difficult trading environment.
Some of these stocks include JC Penny (JCP), which finished higher for a third day in a row on Friday and is back above its 200-day moving average, as well as Macy’s (M). Macy’s has rebounded strongly in recent days following a three-day pullback that took the stock to the brink of oversold territory.
But for all their short term strength, neither JCP nor M is in technically overbought territory. For that, traders should pay more attention to a stock like Dillards (DDS). DDS has been trading in overbought territory for most of the year (dipping below that level in August and September during the bear market) and is up three in a row ahead of Monday’s open. And of those three up closes, the last two have been in overbought territory.
What is especially interesting about Dillard’s is the fact that, based on its exceptionally low rating of 2 out of 10, the stock is now at its most unattractive in months. In fact, the last time shares of DDS earned “consider avoiding” ratings of 2 was back in mid-May. Then, a one-point downgrade from 3 to 2 anticipated a plunge of nearly 14% over the following ten days.
The fact that Dillard’s earned a “consider avoiding” rating, however, does not necessarily mean that the stock is ripe for selling short. After all, the stock is trading in bull market territory and finished at its highest level since early August.
But now may not be the best time to jump onboard the runaway train that is Dillard’s, either. Should the stock’s historical tendency to sell-off after rallying to overbought extremes remain in effect, traders looking to add a stock like DDS to their portfolios will likely have another shot at the stock at lower levels in the near term.
Quantified data and research on exchange-traded funds like DDS is available each evening after the market close. To learn more, click here.
David Penn is Editor in Chief of TradingMarkets.com