Target Stock’s Upside Looks Limited

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Target Corporation (TGT) reports first quarter earnings on Wednesday morning, with analysts expecting the big box giant to post earnings per share of $1.39 on $16.6 billion in revenues. The stock sold off after the retailer met fourth quarter estimates in March, dropping nearly 8% in the three sessions following the release. Target stock has recouped those losses into May but covered little new ground, stuck in a trading range that has now entered its fifth month.

Sector sentiment has improved substantially since March, with department stores posting multi-month highs while rival Costco Wholesale Corporation (COST) flirts with a bull market high. This bullish tailwind raises the odds for a buy-the-news reaction that lifts Target stock above stubborn resistance in the upper $70s. However, that rally will run into even stronger resistance in the low to mid-$80s, suggesting that trend followers and breakout buyers just sit on their hands for now. (See also: Macy’s, Target Among Retail Stocks Making A Comeback.)

TGT Long-Term Chart (1996 – 2018)

 

The stock cleared multi-year resistance near $7.00 in 1996 and took off in a strong trend advance, topping out at $38 in 1999 and dropping into a trading range that broke to the upside in the first quarter of 2002. That uptick stalled quickly in the mid-$40s, giving way to a downturn that posted a failed breakout in June. The decline found support in the mid-$20s in March 2003, while the subsequent bounce reinstated the breakout one year later.

It performed well during the mid-decade bull market, grinding higher in a rising channel that posted a single major pullback into July 2007, when the uptrend ended just above $70. The subsequent decline tested the 2003 low during the 2008 economic collapse, turning higher just 10 cents above that level in March 2009, while the recovery wave into the new decade took nearly four years to complete a round trip into the prior high. The stock turned lower once again in 2013, with Wall Street lowering ratings in reaction to a massive hacking scandal. 

The downturn found support in the lower $50s, ahead of a 2015 breakout into June’s all-time high at $85.81. Aggressive sellers then took control, pressing a volatile decline that continued into the middle of 2017, when the stock bottomed out at a five-year low in the mid-$50s. It’s been on the recovery trail since that time, mounting broken support at the 2013 high in January 2018 and dropping into a rectangular trading range. The monthly stochastics oscillator has crossed into a sell cycle during this period, telling bulls to curb their enthusiasm for now. 

[Check out Chapter 4 of the Technical Analysis course on the Investopedia Academy to learn more about determining whether an asset is overbought or oversold]

TGT Short-Term Chart (2015 – 2018)

 

A Fibonacci grid stretched across the 2015 into 2017 downtrend organizes seemingly chaotic price action. The bounce into 2018 unfolded in two rally waves, with the first reaching the .382 retracement while the second one stalled at the .786 retracement. The second level in the upper $70s marks the final barrier, ahead of buying surge into the 100% retracement. In turn, this favors a range breakout that stalls at or near the 2015 high, with that barrier impeding further progress.  

On-balance volume (OBV) topped out in the first half of 2016, when a bounce stalled within two points of the 2015 high. It plunged into 2017, bottoming out at a three-year low in June, ahead of a buying surge that nearly reached the 2016 peak in January 2018. As a result, it will take little buying power to lift the indicator to an all-time high and set off a bullish divergence that raises the odds for a large-scale breakout. (For more, see: Why These 4 Retailers Are Amazon-Proof.)

The Bottom Line

Target stock has risen sharply off the 2017 multi-year low and could reach 2015 resistance in reaction to a strong first quarter earnings report. While a breakout above that level isn’t likely at this time, strong buying interest suggests that the stock will eventually reach the triple digits. (For additional reading, check out: Consumer Stocks Struggle Under Various Pressures.)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>

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