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. As of January 30, 2011, all of its Williams-Sonoma Home retail stores had been permanently closed.

To analyze William–Sonoma’s stock for potential trading opportunities, please take a look at the 1-year chart of WSM (Williams-Sonoma, Inc.) below with my added notations:

WSM has had a very strong resistance at $40 (blue) for almost the entire duration of this chart. Starting from the end of January 2011, WSM has tested the $40 level on (5) different occasions and almost a 6th time this past March. During the last (6) months, WSM has created an important level at $35 (red) as well, both as support and resistance.

The Tale of the Tape: WSM is currently trading between its $35 and $40 price levels. A long position could be entered on a pullback to $35 or on a break above $40 with a stop placed below the level of entry. However, if you are bearish on the stock or overall market, a short trade could be made on a break below the $35 or on a test of the $40 resistance.

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