The Minneapolis retailer is putting together a fun trend for the bulls: The shares gap higher on earnings, consolidate the gains by trading sideways, and then gap higher on earnings again. We've seen this pattern play out for three quarters now.
While the shares are technically overbought, that alone doesn't make Target a short. In fact, it may well mean the opposite.
With a heavy dose of disappointment in the retail space -- even from stalwarts like Home Depot (HD) - Get Home Depot Inc. (The) Report -- investors find fewer and fewer names in the space worth their attention.
Further, Target stock has tended to become overbought and then work off that condition through time, not through price. In other words, the stock tends to chop sideways until its overbought condition abates, rather than pull back to correct the condition.
The quarter was a smash. Target beat on earnings and revenue expectations and comparable-store-sales estimates and it reported wider gross and operating margins. Further, management gave a significant boost to its full-year outlook.
No wonder it's Real Money'sStock of the Day.
Trading Target Stock
After such strong upside price action, it may be hard to get bullish on Target. But given the momentum in the stock and the report we just saw, I wouldn't want to be short this name.
As far as upside goes, the stock does have a Fibonacci extension from its prior 52-week range up to $127.34. This level may act as resistance in the short term but could act as a hurdle to $130 moving forward.
For those that dare go short, this area would be a solid stop-out mark, as it would keep risk relatively limited.
As far as downside goes, keep an eye on the $118-to-$120 area. This mark's the session lows and highlights where buyers were clearly willing to step in and bid the name higher.
Further, the backside of prior trendline resistance (blue line) is in this area. This could give bulls a reasonable risk/reward should they be on watch for a buyable dip.
Below this area and it's hard to think Target stock would decline back down to the $114 breakout area.
But all it would take is a 3% to 5% correction in the broader market to potentially rattle this relative strength leader.
For now, keep it simple: $127.50 is the upside mark to watch. Over it and the door opens to $130. A dip into the $118-to-$120 area is a buying opportunity so long as support holds.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.