A sporting chance
08/28/18

●Specialty retail stocks have been on a hot streak after a rough 2017.

●Specialty retailer Dick’s Sporting Goods (DKS) releases earnings Wednesday.

●Stock has pulled back from recent highs.


 

Was Dick’s Sporting Goods (DKS) having a flash sale?

It may have looked like it to retail industry bulls. With bulls broadly roaming the market plains yesterday, Dick’s Sporting Goods (DKS) was in the second day of a pullback from last Thursday’s (August 23) high of $38.62, which itself was just a bit below the May 30 high of $38.99 the stock made when it jumped nearly $8 after its most recent earnings release:

Dick’s Sporting Goods (DKS), 4/27/18–8/27/18. Dick’s Sporting Goods (DKS) daily price chart. Pre-earnings pullback.

Source: OptionsHouse

It’s not every day a stock closes nearly 26% higher on earnings—even really good earnings—and traders looking for a repeat when Dick’s announces earnings again this Wednesday (before the opening bell) are advised to consider that the median DKS return on earnings day over the past 31 quarters was only 0.04%, and the stock closed up 52% of the time.1 In other words, that was then and this is now.

The weekly chart below shows that DKS has spent most of this year climbing off the lows it made in Q4 2017, the end of a big slide from the stock’s November 2016 all-time high near $63. And just as DKS figured prominently in the pounding that many specialty retail stocks took last year (its Q2 earnings miss was one of the early signs of trouble in the group),2 it’s attracted renewed attention from bulls with its rebound, having rallied some 50% off its October 2017 low.

Dick’s Sporting Goods (DKS), 4/27/18–8/27/18. Dick’s Sporting Goods (DKS) daily price chart. Pre-earnings pullback.

Source: OptionsHouse

Can it keep going? The stock may benefit from a continued resurgence in the retail group, which has been one of the best-performing S&P 500 industries the over the past three months, and has had an especially strong August. And Dick’s specifically has been getting props for its execution on the digital side of its business and its ability to realize higher margins.3

Final note: As it turned out, yesterday’s “sale,” if that’s what it was, didn’t last long. Although it was still trading at a roughly 6% discount to its close from last Thursday, DKS pushed into the green before the morning was over.

Market Mover Update. This week started with quite a bang. The S&P 500 (SPX) followed up on Friday’s new record high/close by gapping higher to a new all-time high yesterday, as did the Nasdaq 100 (NDX). The Nasdaq Composite (COMP) followed suit, and topped 8,000 for the first time in the process. The Russell 2000 (RUT) hit a new record peak as well, and the Dow Jones Industrial Average (DJIA) pushed back above 26,000 to reach its highest level since February 2.

Despite its rocky post-earnings price action, Alibaba (BABA) rallied more than 2.5% yesterday and formed a swing low above the support level noted in “Thank you for your support.”

Facebook (FB) gained more than 1% yesterday, breaking out of a brief consolidation and forming a potential short-term bottoming pattern.

 

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1 Supporting document available upon request.

2 TheStreet.com. Sports Retailers Stage Epic Comeback From Year-Ago Drubbing. 8/15/18.

3 CNBC.com. Specialty retailers surge, and two stocks could bounce even higher on earnings. 8/24/18.