The stock's recent price action may underscore an improving technical backdrop
Subscribers to Schaeffer's Weekend Trader options recommendation service received this DKS commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.
Dick’s Sporting Goods Inc (NYSE:DKS) just crossed above the 65-unit trendline on the hourly chart, which is equivalent to its 10-day moving average. This trendline was supportive in January through March, but was a sell signal during an early-April breach. Given that a mid-April retest has proven to be only a short-term sell signal, we’re recommending a new long position on DKS, on the possibility that the recent reclamation underscores the improving technical backdrop.
The retail stock is above $202, which is double its October low where profit taking could have occurred amid growing broad-market headwinds. This action follows a trough at the equity’s advancing 50-day moving average. What’s more, DKS scored a 15.5% post-earnings bull gap in mid-March, and the shares are still above that pre-earnings close. This mean shorts, who represent 10% of the stock’s total available float, are feeling the pressure, evidenced by short covering in the latest reporting period.
Analysts are still pessimistic, leaving room for an unwinding of sentiment that could add tailwinds. Right now, 15 of 28 covering brokerages rate DKS a “hold” or worse. Options are reasonably priced at the moment, considering the equity’s implied volatility (IV) of 36% is below its 63-day historical volatility (HV) of 38%. There’s potential for IV to drift higher, too, with earnings due in June.
Our recommended July call has a leverage ratio of 6.8, and will double in a 15.1% rise in the underlying equity.