Stock Quotes in this Article: SHLD

DELAFIELD, Wis. (Stockpickr) -- The market continues to struggle today, and that weakness is most notable with technology stocks, or stocks that trade on the Nasdaq exchange.

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The Nasdaq Composite is trending lower right now by around 25 points, or by 0.5%, to just under 4,060. Traders continue to puke up technology stocks despite the recent strong earnings reports from iPhone maker Apple (AAPL) and social media giant Facebook (FB).

If you take a look at the chart for the PowerShares QQQ Trust (QQQ), an ETF that tracks the Nasdaq 100 Index, you'll see that it has been downtrending over the last two months, with shares moving lower from its high of $91.15 to its recent low of $83.28 a share. The QQQ recently bounced sharply off that $83.28 low right up to its 50-day moving average, but this technology ETF has started to fail at it 50-day and once again is heading lower. A test of the 200-day moving average on the QQQ at just below $83 seems likely now.

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Since the Nasdaq is weak and clearing in a medium-term downtrend, I am doing my scans and looking for names that trade on that exchange that are showing relative strength and not going down today. These names could be the next stocks to make sharp moves higher since the bears are gaining little traction in taking them down in a weak environment. Relative strength is a momentum investing strategy that compares the performance of a stock with the overall market or the index it trades on.

One Nasdaq-based name that's showing relative strength today in the face of the index's weakness is Sears Holdings (SHLD), a retailer with 2,172 full-line and 1,338 specialty retail stores in the U.S. operating through Kmart Holding Corporation and Sears, and 500 full-line and specialty retail stores in Canada operating through Sears Canada, a 95%-owned subsidiary. Over the last three months, shares of SHLD have trended higher by 12% vs. the Nasdaq composite, which has dropped by 1.4%.

Shares of SHLD are trading higher today by 3.8% to just over $43 with decent upside volume. The volume so far has eclipsed 1.11 million shares, which is getting very close to its three-month average volume of 1.56 million shares. The relative strength performance is worth following here for shares of SHLD, but another thing that should make traders perk up is the recent large insider buy. Company director Thomas Tisch recently bought 475,000 shares, or about $15.9 million worth of stock, at $33.40 to $33.60 per share. Tisch holds about 3.7 million shares of SHLD, which makes him one of its largest shareholders.

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Another reason that traders should put this relative strength name on their trading radar is due to the large short interest in the stock. The current short interest as a percentage of the float for SHLD is very high at 36.8%. That means that out of the 43.35 million shares in the tradable float, 15.59 million shares are sold short by the bears. That is a monster short interest on a stock with a relatively low tradable float. The shorts who're heavily involved in this stock have failed to take it lower during the recent weakness in the Nasdaq. That could be a signal that shares of SHLD are slipping out of the control of the bears and the stock is setting up to trend much higher.

Sears Holdings is not performing very well from a fundamental perspective. This company has reported 28 consecutive quarters of sales declines, with a loss of close to $1.4 billion last year. There doesn't look to a turnaround for Sears Holdings anywhere on the horizon, but the company and the stock might be attractive here for other reasons. Some speculation has entered the market that (AMZN) would be wise to buy Sears Holdings for its vast real estate assets and other retail synergies. I doubt that happens, but what's more likely to occur is that Sears Holdings continues to spin off and sell assets and real estate like it recently did with its Lands End (LE) unit.

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From a technical perspective, shares of Sears Holdings have been uptrending strong over the last few weeks, with shares moving higher from its low of $31.26 to its recent high of $44.67 a share.

During that uptrend, shares of SHLD have been consistently making higher lows and higher highs, which is bullish technical price action. The recent run for SHLD has now pushed the stock back above both its 50-day and 200-day moving averages, which is bullish. This move is quickly pushing shares of SHLD within range of triggering a near-term breakout trade.

Traders should look for long-biased trades in SHLD if it manages to break out above some near-term overhead resistance at $44.67 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.56 million shares. If that breakout materializes soon, then SHLD will set up to re-test or possibly take out its next major overhead resistance levels at $52.50 to $56 a share. Any high-volume move above those levels will then give SHLD a chance to make a run at its next major overhead resistance levels at $62.57 to its 52-week high at $67.50 a share.

Market players can look for long-biased trades in SHLD off weakness as long as it's trending above its 200-day at $39.22 or its 50-day at $37.05 a share. One could also look to buy SHLD off strength once it takes out $44.67 a share with volume and then simply use a stop that's a comfortable percentage point from your entry.

-- Written by Roberto Pedone in Delafield, Wis.


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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including and You can follow Pedone on Twitter at or @zerosum24.