The Big 3: KSS, SHOP, MSFT

Marlee Caden (0:02)

Welcome back to Trading 360 I'm Marlee Caden. It's time for the Big Three. We've got three stocks, three charts, and three trades for you. Kevin Green will be taking us through those charts here to take us through the trades today. Don Kaufman, the co-founder of TheoTrade. Great to have you both with us. Don, I love having you on a big data day, and we got the CPI this morning. Hotter than expected, we're seeing yields rise. Would love to get your thoughts.

Don Kaufman (0:26)

You know, I think this CPI data point is nothing more than a fuse in a marketplace that's been really kind of a pool of gasoline. It's been a powder keg out there for a marketplace, and this CPI report just lit that. Look, I don't think it's going to make any material changes necessarily for the Fed. I know the probability shifted dramatically today for the Fed fund futures, but the reality, there's probably one more rate hike. But the marketplace obviously not reacting very well at this point in time.

That being said, look, the advanced decline line in the S&P is still 50-50, and that to me is one of the most bothersome aspects of this marketplace.

Marlee Caden (1:08)

All right, so let's dive in to your big three and where you're potentially seeing some opportunities then in the current market. You've got Kohl's as your first pick here. Kohl's under pressure today. They had a mixed second quarter results. They continue to have conversations about a consumer who's under pressure and tightening their belt. So how are you looking at Kohl's?

Don Kaufman (1:29)

Yeah, you know, it's interesting. Kohl's just as of late has really been quite the rip to the upside. And again, I'm saying that as I'm surprised. And this one actually kind of caught me a little bit off guard. And I'm gonna actually take the opposing side of it. Now look, I'm going to build a short position. I'm going to build a bearish position using an option spread before we get there right now. What do I see inside of some of the price action? I am basing my bearish position predicated on the idea that in the last four consecutive weeks, the market in Kohl's has actually outstripped with the implied volatility of the options denoted, meaning that we are literally four weeks in a row, gone too far, too fast. If the options market said we were supposed to move $3, $4, for an example, the Kohl stock is moving $4 or even $5.

So we've done that in, again, consecutively four weeks. It's a statistical anomaly, if you will, to a bit of a degree. I'm just looking for a very brief, kind of violent pullback. And we might be seeing the beginnings of that today. I'm just going to go to the November 20th options expiration in this case. And I'm going in there fairly shallow. I'm going to use what's termed an in-out spread. One strike in the money, one strike out of the money. I'm going to buy a 22-put.

And I'm going to sell a 20-put against just a $2-wide put spread done for a 90-cent debit. This trade is all about being defined risk, right? The absolute, you know, most I can lose is 90 cents. My upside is limited, but I'm just looking for a little bit of violence in terms of a pullback on Kohl's.

Marlee Caden (3:11)

All right, KG, so as we look at Kohl's and at this chart and the technical setup, are you seeing the possibility that we see a swift move here in the near term?

Kevin Green (3:22)

Maybe not a swift move, but we are maybe at a area of resistance when you're looking at the stock here. We have seen kind of a lot of volatility when it comes to this name. Obviously, around the middle of this year, we did see around May or so, the stock actually hitting down to around $11.38.

Buyers have stepped in ever since here. We have been trying to establish this kind of expanding megaphone pattern. Now, I will say that it's a little bit more bullish than bearish, a little bit of a higher-low scenario here, but we are hitting the upper end of resistance. Yesterday, we did have kind of this inverted hanging man candle or this inverted hammer candle at the top of a trend that does signify a potential reversal here. What you're looking at is a support area of around $18.82. That aligns with the 20-day moving average. If we break below that, you're looking at the 200-day or the next area of support here. Now, if you are able to see a break out from $22 and you're able to break out even higher than that, you're looking at another $2 higher to run on $24 or so.