Dillard’s Inc. (NYSE: DDS)

Dillard’s, Inc., together with its subsidiaries, operates as fashion apparel, cosmetics, and home furnishing retailer in the United States. The company offers fashion apparel for women, men, and children, as well as accessories and other consumer goods. Its merchandise selections comprise lines of brand merchandise, such as Antonio Melani, Gianni Bini, Roundtree & Yorke, and Daniel Cremieux. It also sells its merchandise on-line through its Web site, dillards.com. In addition, the company operates as a general contracting construction company. As of January 28, 2012, it operated 304 retail department stores located primarily in the southwest, southeast, and midwest regions of the United States. The company was founded in 1938 and is based in Little Rock, Arkansas.

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 had been consolidating within a small Rectangle pattern over the last (2) months. A Rectangle pattern forms when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. With DDS, the Rectangle pattern formed a $70 resistance (black) and a $65 support area (red), a support that was also a strong resistance prior. Yesterday the stock broke its $65 support and should be moving lower overall from here.

Chart patterns can also provide price targets. Simply take the height of the overall pattern and add or subtract that amount to or from the breakout or breakdown point to get the minimum price objective. For example, since the Rectangle pattern for DDS is $5 high ($70 – $65), the stock should fall to a minimum of $60 ($65 – $5) now that it has broken support. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.

The Tale of the Tape: DDS formed a common Rectangle pattern and the stock broke the support created by that pattern. The ideal trading opportunity would be a short trade on a rally back up to $65. A break back above $65 would provide a long trading opportunity instead.

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