Todays Big Stock: Dillard’s, Inc. Common Stock (NYSE: DDS)

Being that the market has had a nice recovery over the last week or two, it’s becoming a little uncertain whether the desired trades should be long or short. Does the market still have room to run, or is a sell-off looming? Might the market simply pull back before continuing higher? To be prepared either way, it never hurts to have stocks in your watch list that present you with trading opportunities regardless of what direction the market heads. One such stock that may fit that description would be that of Dillard’s Inc.

Dillard’s, Inc. (Dillard’s) is engaged in apparel and home furnishing retail business. The company operates in two segments: the operation of retail department stores and a general contracting construction company. As of January, 2011, the company operated 308 Dillard’s stores, including 14 clearance centers, and one Internet store offering a selection of merchandise, including fashion apparel for women, men and children, accessories, cosmetics, home furnishings and other consumer goods.

To review Dillard’s stock, please take a look at the 1-year chart of DDS (Dillard’s, Inc) below with my added notations:

DDS has recovered nicely over the last couple of weeks with the rest of the market. After finding support near the $40 level, the stock has rallied all the way back above the expected $45 resistance. That $45 level should now act as support on any pullbacks. On the other hand, the next level of expected resistance for DDS on the way up should be $50.  Lastly, a break below $45 should signal lower prices for DDS, while a break above $50 should mean a higher stock price to follow.

The Tale of the Tape: DDS has moved back up in between two very important levels for the stock: $45 and $50. Long trades could be made on a pullback to $45 or on a break above the $50 level. A stop should be placed under the level of entry. On the other side, if you are bearish, you could enter short trades on DDS if it rallies to $50 or breaks below the $45 level. In that case, stops should be placed above the level of entry.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT