Sears Holdings, Inc. (SHLD) has already given up most of its gains following better-than-expected first-quarter financial results. Shares initially soared more than 30% after the company reported its first GAAP (generally accepted account principals) profit since the second quarter of last year. But, the stock quickly reversed course as the market digested the fact that the retailer’s performance was still weak with a 12.4% drop in comparable sales and a 20-basis point drop in gross margins to 21.6%.
The popular retailer has been struggling – along with most other retailers – with intensifying competition from online retailers like Amazon.com, Inc. (AMZN) and low-cost retailers like Wal-Mart Stores, Inc. (WMT). Analysts like Evercore believe that the company is in a “tenuous” position with weak sales and market losses in major categories, which casts doubts on management’s plan to execute a turnaround strategy.
From a technical standpoint, the stock recently broke down from a Head and Shoulders chart pattern before rebounding from trend line support at around $7.50. The rebound was short-lived, however, as the stock quickly dropped back to trend line support levels by Friday. While the relative strength index (RSI) appears oversold, the moving average convergence-divergence (MACD ) shows an accelerating downtrend that remains well intact.
Traders should watch for another rebound from trend line support at around $7.50 on the upside or a potential breakdown below to support to re-test lows of around $5.50 that were made back in February of this year. Overall, traders should retain a bearish bias on the name despite oversold technicals given the fundamental weakness.
Charts courtesy of StockCharts.com. Author holds no position in the stock(s) mentioned except through passively-managed index funds.