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Surviving Staples in an Amazon World

Tickers in this article: AMZN SPLS WMT

NEW YORK (TheStreet) -- When the dust settled after the closing bell on Thursday, Staples shed about a billion dollars in market valuation from the close on Wednesday. If you're nearing a point of breaking the glass to push the panic button, you may want to wait a little longer.

Staples shares are down almost 28% for the year to date as of Friday's close of $11.48.

Thursday's and Friday's fall didn't break through any significant support levels because there is none. I can find a support trend line on a weekly chart, but otherwise not much to sink your teeth into. The next area of support to watch is $10.50. That's the low made in the third quarter of 2012.

I don't think Staples will re-test the lows and will find support above $11. Current shareholders should consider holding or adding to their position if it makes sense for their investment objectives. If you're considering an entry, there are several ways to exploit the current panic through options.

From my trading experience with gaps down after an earnings miss similar to Staples, investors will see short-term lows by Monday. Friday's open near the low of the day suggests it won't take much time for the market to figure out the first knee-jerk reaction may have more emotion than logic.

Bargain hunters and short-sellers covering positions could push the price up quickly in relation to the gap-down price this week. Looking at the chart, I expect short-term resistance near $12 and again at $12.60. Round numbers often attract like a price magnet and repel, causing a lot of trades in the area. The $12 level may take some time to break above, so if you're hoping for a fast recovery you may have some disappointment.

Not that it's a consolation, but Amazon and Wal-Mart's Sam's Club have ripped apart many other competitors much worse. Closing stores is a step in the right direction and building its online sales channel places Staples on a level playing field with Amazon and others. Amazon does mail order exceedingly well, but the efficiency differences among the companies is small enough that marketing and strategic planning are the deciding factors.

SPLS Short Interest Chart