Target - Buy on the Dip or Steer Clear?

Target is getting hammered after disappointing holiday sales. Do the charts say to buy the dip or stay away from the stock?
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Target  (TGT) - Get Report has been a best-in-class retailer, with shares surging over the past year. But it doesn’t feel that way Wednesday, with shares down more than 7%.

Causing the fall? The same thing that crushed Kohl’s  (KSS) - Get Report, Five Below  (FIVE) - Get Report and other retailers over the past week: disappointing holiday sales.

Target reported that comp-store sales rose 1.4% for November and December, with comparable-digital sales up 19%. Comp-store sales growth is now expected to come in at 1.4% for the quarter, below consensus expectations of 3.8%.

It seems as though the shorter holiday season is weighing on retailers, as there were six less days between Thanksgiving and Christmas in 2019.

As we said at the top though, Target stock is a high-quality retailer. Does this dip prompt investors to buy the dip or steer clear? The question has inspired the Real Money team to select Target as its Stock of the Day.

Let’s look at the charts.

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Trading Target Stock

Daily chart of Target stock. 

Daily chart of Target stock. 

Look at the last eight months of trading in Target stock. You’ll notice a very clear pattern, which is that the stock gaps higher, consolidates for several months, then gaps higher again. These patterns are highlighted in blue boxes, while the gaps are highlighted in purple.

On the chart, you’ll notice that Target stock is gapping below the 50-day moving average and out of the current range (blue box).

In the short term, that leaves one of two options on the table for investors. Either buy the dip and reclaim those two levels, or steer clear until the stock finds its footing. Regarding the latter, that may come from the 100-day moving average at $115.

Aggressive traders can buy Target stock knowing that if the 100-day fails, they can cut their losses as TGT stock may very well fill the gap from November down to $110.50.

Should Target shares rebound from current levels, investors need to see how much strength it can garner on the upside. For instance, if the stock can back into its prior range, can it reclaim the 50-day moving average? Can it fill Wednesday’s gap back up to $125?

If it can’t, we may be seeing a change in tune for the short term, particularly with Target not reporting earnings until early March.

So what’s the bottom line? 

Aggressive buyers can step in on this 7% haircut and buy into the 100-day moving average. If it fails as support, a gap-fill down toward $110.50 is on the table. A move above $118 puts the 50-day moving average on the table. Over the 20-day and 50-day moving averages, and Target stock could retest the $130 level. 

If Target can’t reclaim these moving averages and/or drops below the 100-day moving average, it may signal caution until a future catalyst arrives (like earnings).