Big-box retailer Target (TGT) - Get Report reports quarterly earnings before the opening bell on Wed., Aug. 21, challenging its all-time intraday high of $90.39 set on Sept. 10, 2018. The stock has been moving sideways below this high since June 5 and a monthly pivot has formed for August at $86.66, which has been a magnet so far this week. My call is to reduce holdings with the stock between this monthly pivot and the all-time high. This strategy is betting that the stock will confirm a double top.
Target may have beat earnings estimates on May 22, but the retailer only reported better-then-expected earnings-per-share twice over the last six quarters. The stock is fundamentally reasonably priced with a P/E ratio of 14.98 and a dividend yield of 3.04%, according to Macrotrends.
It seems like Wall Street is betting that Target will follow Walmart (WMT) - Get Report higher, but I would not make that bet. Walmart traded to its post-earnings high of $114.93 on Fri. Aug. 16 testing its quarterly risky level at $114.78 and has stayed below its all-time high of $115.49 set on July 16. Target traded higher following Walmart and has reached its monthly risky level at $86.66 with its all-time intraday high at $90.39 set on Sept. 10, 2018.
Target close Monday at $86.58 up 31% year to date and in bull market territory up 43.9% above its Dec. 24 low of $60.15. The stock set its 2019 high of $89.51 on July 24.
Analysts expect Target to earn $1.61 to $1.67 per share when it reports quarterly results before the open on Wed., Aug. 21. Target has implemented some promising initiatives such as expanding their digital footprint with online ordering and curbside pickups. They are attempting to attract more high-income shoppers with discounted popular brands of clothing and home furnishing. Target announced the roll-out of its own food and beverage brands under the brand name Good & Gather. This initiative is targeting Amazon's (AMZN) - Get Report ownership of Whole Foods.
The Daily Chart for Target
Courtesy of Refinitiv XENITH
The daily chart for Target shows some price gaps both higher and lower. The big box retailer missed earnings estimates on Nov. 20 and the stock gapped significantly lower. There was a warning at the close of $77.79 on Nov. 19 with this close below the 200-day simple moving average then at $78.29. This led the stock to its Dec. 24 low of $60.15. From its all-time intraday high of $90.39 set on Sept. 10, 2018, the stock had a bear market decline of 33.4% to this Christmas Eve low. The stock closed at $66.09 on Dec. 31, which was an important input to my proprietary analytics. The annual pivot remains at $71.39, which was a magnet between Jan. 23 and May 21. A positive reaction to earnings on May 22 resulted in a price gap high that propelled strength to the July 24 high of $89.51. These two highs should be considered a potential double top. A semiannual value level is $62.29 with a monthly pivot at $86.66 and quarterly risky level at $98.29.
The Weekly Chart for Target
Courtesy of Refinitiv XENITH
The weekly chart for Target is neutral, with the stock above its five-week modified moving average of $84.86. The stock tested and held its 200-week simple moving average or "reversion to the mean" at $71.27 during the week of May 17 as a buying opportunity. The 12x3x3 weekly slow stochastic reading is projected to decline to 68.47 this week down from 72.78 on Aug. 16.
Trading Strategy: Buy weakness to the 200-day simple moving average at $77.73 and add to positions on weakness to its annual pivot at $71.39 and 200-week SMA at $71.27. Reduce holdings on strength to its quarterly risky level at $98.29.
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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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on July 31. The quarterly level was changed at the end of June. 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.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.