Steer clear of this battered retailer: Traders

Shares of Kohl's took a massive hit this week.

The American retailer plummeted Thursday after a disappointing earnings. It missed analyst expectations in adjusted earnings per share and quarterly sales. The specialty department store blamed poor results on a recent shift in sales-tax holidays in some U.S. states. However, Kohl's continuous struggle to perform has investors on high alert.

Second-quarter earnings showed a 44 percent decrease in profit from last year. Meanwhile, its stock has fallen 2 percent while the S&P 500 retail industry group has risen 35 percent.

Read More The tale of the two kinds of retailers

"It's really been in this big 15-year sideways range. It's made no upside progress since 2000," said Ari Wald, head of technical analysis at Oppenheimer.

"We'd be staying away," Wald said. "The stock is in freefall, with no base yet and no support."

Kohl's hasn't been the only retail name to get hit after earnings. Macy's shares also suffered a massive selloff after reporting a 26 percent drop in second-quarter profits on Wednesday.

People approaching Kohl's department store in Mount Kisco, New York.
Scott Mlyn | CNBC
People approaching Kohl's department store in Mount Kisco, New York.

For those still interested in playing brick-and-mortar retailers, Dennis Davitt of Harvest Volatility Advisors would recommend using options to reduce risk in the retail sector.

"I would buy puts to insure my portfolio," said Dennis Davitt of Harvest Volatility Advisors. "And if Kohl's does rebound to the top of that range again buying call options in a stock like Kohl's is a great way to participate in the upside, but limit your risk to the downside."

Other multi-line retailers, however, are looking a lot more better after earnings. J.C. Penney jumped nearly 5 percent after reporting a narrower-than-expected adjusted loss in the second quarter. Nordstrom shares also looked good on Friday's session, after the company beat earnings estimates and boosted guidance.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more