PreMarket Prep Stock Of The Day: Dillard's

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

All stocks need a positive catalyst to instigate a rally or keep one going and they can come in a variety of different ways. Dillard’s Inc. DDS is trading sharply higher, making it the PreMarket Prep Stock Of The Day.

The Company: Dillard's is an American fashion apparel, cosmetics and home furnishings retailer with locations across the country. Dillard's stores offer a large variety of merchandise and feature products from both national and exclusive brand sources.

Those Were The Days: Dillard’s peaked in April 2015 at $144.21 along with many other retailers who were yet to cannibalized by Amazon.com, Inc. AMZN. At its current price of $58, it has had a negative return of 60%. Over that same period of time, the S&P 500 index has yielded 40%.

On Sale In March And April: After ending 2019 at $73.48, the issue did not participate in the January rally, falling from $73.48 to $21.72. However, it more than participated in the March meltdown; while the S&P 500 index shed 35% from its February peak to March low, Dillard's swooned 69% over that same time span.

The S&P 500 index bottomed in March, but Dillard's did not until May 14 at $21.50. That low came just above its November 2010 low of ($20.31).

Rebound Picks Up The Pace: As of Friday, the issue had more than doubled off that low and after topping out last Wednesday at $46.45, it retreated to end the week at $42.08.

The catalyst for today’s explosive rally is the announcement that Berkshire Hathaway (NYSE: BRK-A) investment manager Ted Weschler (often mentioned as a successor to Buffett) had taken a 5.89% passive stake in the company. In the Street’s eyes, what's good enough for Buffett is good enough for them.

Ripe For A Short Squeeze: Many of the recent rallies in several beaten-down issues have been the result of a short squeeze. In other words, issues with extraordinarily high short interest catch a major bid when a positive catalyst is announced.

As of Friday, there was a 47% short float in the issue with a short interest ratio of (days to cover) at 12.1.

PreMarket Price Action: When the issue was being discussed on the show it was trading at $48.50 area. Both hosts of the show suggested that with the high short interest, the issue could easily exceed its premarket high ($50) and there was limited resistance in the issue based on the monthly charts. Co-host Dennis Dick warned that if media outlets got a hold of the news and started pumping it as Buffett pick, it would go much higher.

The full discussion on the issue from today’s show can be found here.

Price Action In Regular Session: Shorts in the issue are in the full scrambling mode. After opening at $50.25, it had a brief retreat to $49.82 and then rallied all the way to $61.50. That high coincides with its Feb. 24 high ($61.39) and its Feb. 25 high ($61.72).

As of 12:30 p.m. ET, it has backed off that level and is training in the mid $58 handle.

Photo via Wikimedia.