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Is Target Hitting a Top With Earnings on Deck?

Target ramped up to new highs ahead of earnings but is now starting to pull back. Did the stock just top ahead of earnings?

Target  (TGT) - Get Target Corporation Report shares were down almost 2% on Tuesday, struggling against a broader market that was trading flat on the day.

The decline comes a day after the stock hit a new all-time high and as retail stocks begin to report earnings. For Target, the company is scheduled to report earnings on Wednesday before the open, along with Lowe’s  (LOW) - Get Lowe's Companies, Inc. (LOW) Report.

Weighing on Target on Tuesday is the post-earnings dip we’re seeing in Home Depot  (HD) - Get Home Depot, Inc. (HD) Report and Walmart  (WMT) - Get Walmart Inc. Report despite better-than-expected results.

Better known as a “sell the news” event, these names are dipping after a strong rally ahead of solid results. Now the fear with Target is that the same thing will happen Wednesday.

Will this quarter mark the high for Target stock? It may top temporarily near current levels, but I don’t expect this name to be down forever - if it’s down at all.

Trading Target Stock

Daily chart of Target stock.

Daily chart of Target stock.

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The price action in this name has been beautiful, technically speaking. The sharp rise off the March and April low resulted in a multi-month wedge pattern from May through July (blue lines).

With Target doing well amid the pandemic — and likely doing well in the most recent quarter — shares ultimately resolved to the upside. Unlike many stocks, Target topped in December 2019, not in February 2020.

In August, shares broke out over those prior highs near $127.50, then pulled back that mark and held it as support. Resistance turning to support is textbook bullish price action.

Target stock has been a strong run recently, coming with pennies of the 123.6% extension at $138.05. On earnings, I want to see if shares can clear and close above this mark, putting the 138.2% extension in play at $143.77. Above that and a longer-term price target of $153 can be used, which is the 161.8% extension.

On a decline, bulls may consider buying the dip on a decline to the 20-day moving average and/or the prior highs near $127.50.

With Tuesday’s dip, Target stock is working off some of its overbought condition. Even with the decline though, shares are still up more than 11% over the last few weeks, and coming into Tuesday, had risen in 12 of the prior 15 trading sessions.

Let’s see how shares handle earnings from here. A dip isn't the end of the world.