Dick's Sporting Goods Rally Stalls After Downgrade

DKS stock is coming off a four-week winning streak

Wells Fargo downgraded Dick's Sporting Goods, Inc. (NYSE:DKS) to "market perform" from "outperform," saying it's "moving to the sidelines," with the retail stock up 25% year-to-date through Friday's close at $39 -- in line with the brokerage firm's DKS price target. Wells Fargo also expressed concern over the sporting goods retailer's "ability to stabilize margins," even with a "long-term opportunity to consolidate market share in the industry."

Against this backdrop, DKS stock is down 2.1% this morning to trade at $38.17. The security is coming off a four-week winning streak, and has surged more than 22% since its mid-August lows near $31.25. Plus, today's drop is being contained near a 23.6% Fibonacci retracement of Dick's Sporting Goods' rally off its late-December low at $29.69 to its early March peak at $40.82.

Most analysts are already skeptical of DKS, and prior to today, 11 of 14 maintained a lukewarm "hold" recommendation. Additionally, the average 12-month price target of $37.13 is a discount to current trading levels.

This pessimism is seen elsewhere on Wall Street, too. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Dick's Sporting Goods stock's 10-day put/call volume ratio of 1.07 registers in the 78th annual percentile, meaning puts have been bought to open over calls at a quicker-than-expected clip.

Meanwhile, short interest on DKS jumped almost 10% in the two most recent reporting periods to 22.25 million shares, accounting for 35.2% of the stock's available float, or 9.3 times the average daily pace of trading. Should the retail stock resume its longer-term uptrend, a capitulation from some of the weaker bearish hands could create tailwinds.