Big box retailer Target (TGT) - Get Report beats earnings estimates on Wednesday, so the stock popped above its 200-day simple moving average at $77.71. Investors should buy Target on weakness to its 200-day SMA for gains plus the 3.55% dividend yield.
As this week began, the stock held its annual pivot at $71.39 and its 200-week simple moving average at $70.74, which are technical positives. Target opened Wednesday at $77.01 up 16.5% year to date and up a bull market 28% since setting its Dec. 24 low of $60.15. The stock is still in correction territory 14.8% below its all-time high of $90.39 set on Sept. 10.
Longer term, Target is consolidating its 2018 bear market. In 2018, the stock declined 33.4% from its all-time intraday high of $90.39 set on Sept. 10 to its Dec. 24 low of $60.15.
TheStreet.com reports that same-store sales at Target were impressive as the retailer confirmed full-year guidance. The stock is Jim Cramer's Real Money Stock of the Day.
Target's e-commerce sales rose by 42% in the quarter and its strategy to buy online and pick up at the store was deemed successful. The retailer is reasonably priced with a P/E ratio of 13.32 and a dividend yield of 3.55%, according to Macrotrends.
The Daily Chart for Target
Courtesy of Refinitiv XENITH
The daily chart for Target clearly shows the bear market decline of 33.4% from the Sept. 10 high of $90.39 to the Christmas Eve low of $60.15. Note the huge price gap lower that followed the earnings report released on Nov. 20, which put the stock below its 200-day simple moving average then at $78.29. The stock closed at $66.09 on Dec. 31, which was an important input to my proprietary analytics. Its annual pivot remains at $71.39 with its semiannual value level at $62.34. The close of $80.26 on March 29 was an input to my analytics and its quarterly risky level is $86.35. The close of $77.42 on April 30 was also an input to my analytics, and the monthly value for May is $65.75.
The Weekly Chart for Target
Courtesy of Refinitiv XENITH
The weekly chart for Target will be upgraded to neutral if the stock ends this week above its five-week modified moving average of $76.45. The stock tested and held its 200-week simple moving average or "reversion to the mean" at $70.74 this week. The 12x3x3 weekly slow stochastic reading is projected to decline to 46.43 this week down from 54.02 on May 17. At the 2019 high of $83.16 set on April 22, this reading was 91.26 above 90.00 as an "inflating parabolic bubble," which popped before the 2018 bear market.
Trading Strategy: Buy weakness to the 200-day simple moving average at $77.71 and add to positions on weakness to its annual pivot at $71.39 and 200-week SMA at $70.74. Reduce holdings on strength to its quarterly risky level at $86.35.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.