Target Shares Fall Despite Rising Sales - Here’s the Trade

Target's same-store sales are booming, yet its shares are falling. Here's a technical look at potential support for TGT stock.
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Target  (TGT) - Get Report stock is trading lower after the retailer updated investors and analysts on its business following the coronavirus outbreak.

Target's same-store sales are trending higher in March, up about 20% year-over-year for the month thus far. The Minneapolis company is seeing strength in essentials like cleaning products, medicine, food and beverages.

Target same-store sales for food and beverage have risen about 50% -- but comparable sales for apparel and accessories are down about 20%. 

Further, management warned that a decrease in higher-margin discretionary sales could hurt the business.

Because of the uncertainty in the current climate, Target is pulling its first-quarter guidance. It’s also shelving its buyback for the time being.

Like other retailers, Target is clearly seeing a spike in traffic due to panic buying from the public. 

At this point, the impact is not yet clear, though, at least at it pertains to operations. As for the stock price, the impact is clear as day, with investors selling the stock.

Is that a mistake?

Trading Target Stock

Weekly chart of Target stock.

Weekly chart of Target stock.

Target stock is clearly finding buyers in the low-to-mid-$90s. Why do I say that? The weekly chart shows the past three weeks of declines have all ended in this area, with small bounces higher as a result.

But the last measure on the chart still has a few sessions to go (until the end of week) before being complete. Could it lose support?

It’s possible. It’s also possible that Target heads lower next week, too, even if nearby support holds for the rest of this week. If that’s the case, bulls should pay attention.

With a slightly larger decline, Target stock becomes much more attractive. That’s as the 100-week moving average and prior breakout zone sit near $88. 

A decline to $88 will put Target shares 32% below the current 52-week high and give the stock a 3% dividend yield.

Given that the company’s business isn’t falling off a cliff, that seems like a rather reasonable price to pay for a high-quality retailer.

On the upside - whether Target falls to $88 or not - let’s see if the stock can reclaim the $100 mark and the 50-week moving average. 

Above that and the $107 level is on the table, which is the underside of prior uptrend support (blue line), as well as current downtrend resistance (purple line).

Let’s take it one step at a time. For now, see whether Target rebounds to $100 or tests down into the $88 area.