Take Out Your 'Fun Money' as Kohl's Surprising Jump Turns Heads
Welcome to the freak show. This is how you Kohl's.
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My first thought Tuesday morning, when I saw the share price of Kohls' Corp. KSS spike, was that maybe the company finally caught a bid for their struggling retail business.
This is a name that I have long covered for my 'Stocks Under $10/Small Caps' column, always willing to take a look, and never taking action. The stock closed on Friday at $9.58 and then closed on Monday at $10.42, up 8.8% for the session.
That was just the beginning.
As I write this late-morning Tuesday missive, KSS is trading with a $14 handle, up roughly 37% on the day, but has traded as high as $21.39 since the opening bell. Kohl's had been reached out to for comment by several members of the financial media. There was no comment to be had.
So, is there a bid for the company? Or is at least some potential suitor making overtures? We don't really know for sure. The fact that the stock is already so far off of the highs would suggest meme-stock type trading. That certainly seems plausible.
A month ago, short interest amounted to about 63% of Kohl's entire float. To put that in perspective, I get cautious about shorting a stock once more than 8% of the float is held in short positions.
Kohl's is still more than a month away from reporting its second-quarter financial results. Expectations are for a profitable quarter coming off of a rough Q1. Still, the adjusted EPS of $0.36 that Wall Street is looking for would be down from the $0.59 year-ago comp. Total sales are also expected to have contracted almost 4.5% year over year. Of the twelve analysts that I can find, eight have reduced their Q2 earnings estimates since the quarter started.
The Chart
Interestingly, KSS developed a cup-with-handle (maybe a saucer with handle) pattern with a $10 pivot that culminated back in late May. This pivot acted as resistance until Monday, when it cracked to the upside. That may have been the technical catalyst for a flash short covering.
The deal now is this. If KSS can hold above that thin red line (the 200-day simple moving average), that would force institutional portfolio managers that are exposed on the long-side to increase that exposure. This in turn, could force another round of short covering.
I am not advocating for an investment in Kohl's. I am saying that on a purely speculative basis, with maybe some fun money, that there is a setup for a second round of algorithmic stupidity. The red line is the key. Be patient.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
