Today’s Big Stock: Williams Sonoma Inc. (NYSE: WSM)

Williams-Sonoma, Inc. is a specialty retailer of products for the home. The company has two segments: direct-to-customer and retail. The core brands in both the direct-to-customer and retail channels include Pottery Barn, which sells casual home furnishings; Williams-Sonoma, which sells cooking and entertaining essentials, and Pottery Barn Kids, which sells stylish children’s furnishings. As of January 30, 2011, it operated 16 stores across Canada representing all of its retail brands.

Please take a look at the 1-year chart of WSM (Williams-Sonoma, Inc.) below with my added notations:

 

 

As you can see from the chart above, the main level to watch on WSM now is the $40 resistance (navy). That $40 level has been acting as resistance as far back as May of last year. A break above this level should mean higher prices for the stock. A potential support area for the stock if it were to suffer a significant pullback would be the $35 level (red).

The Tale of the Tape: WSM is sitting below a strong $40 resistance. A long trade should be made if the stock breaks above this level, with a stop placed below $40. If you are bearish on the stock or the overall market, a short trade could be made instead on a rise to $40. Then, if the stock were to pullback to $35, a long trade could also be made with a stop set below that level.

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