Retail giants Walmart Inc.  (WMT - Get Report) and Target Corp.  (TGT - Get Report) were strong stocks as 2018 began, but suffered with the stock market in December and are now in bear-market territory. Here's my analysis and how to trade them.

First, some background:

Walmart, which is a Dow Jones Industrial Average component, had a bull-market run of 95% from a $56.39 low set in November 2015 to a $109.98 all-time high on Jan. 29. Target likewise had an 86% bull run from a low of $48.56 set in June 2017 to a $90.39 all-time high on Sept. 10.

But things have been far less rosy since then.

Walmart closed on Monday before the holiday at $85.82, down 22% from its Jan. 29 high. The stock also set a secondary high of $106.21 on Nov. 12, which was a so-called "key-reversal" day -- a warning for WMT's holiday season. A daily key reversal occurs when a stock sets a cycle high but then closes below the prior day's low. 

As for Target, that stock ended Monday at $61.55, down 31.9% from its Sept. 10 high. TGT also ended last week under what's called a "death cross," where a stock's 50-day simple moving average falls below its 200-day simple moving average. That historically indicates that lower prices lie ahead.

Negative Reactions to Recent Earnings

Walmart initially had a positive reaction to its earnings way back on Aug. 16. The stock traded around its annual pivot of $96.41 between Aug. 20 and Oct. 23 before popping to $106.21.

But then a key-reversal pattern formed. This was confirmed by a negative reaction to earnings on Nov. 15.

Target likewise had a positive reaction to its earnings back on Aug. 22, which fueled a rally to its Sept. 10 high of $90.39. Weakness since this high also seemed to stabilize by crisscrossing my annual and semiannual pivots at $81.64 and $84.71 between Oct. 4 and Nov. 15.

But then, this zone failed to hold. That turned out to be a warning ahead of a big price gap lower that the stock saw in reaction to earnings reported on Nov. 20.

What the Charts Say

Let's see what the charts tell us about how to trade volatility that might occur following same-store sales guidance that we can expect from Walmart and Target after Christmas Day.

Here's Walmart's daily chart:

Courtesy of MetaStock Xenith

This chart shows the huge price gap higher on Aug. 16. This also was a gap above the stock's 200-day simple moving average (now at $90.81).

The price gap is measured from the Aug. 14 high of $91.12. Price gaps are almost always filled, and that was the case here, as Walmart's low on Dec. 17 was $90.16. Going forward, gapping below the 200-day SMA on Dec. 20 sets up a warning for the stock.

Next, let's look at WMT's weekly chart:

Courtesy of MetaStock Xenith

This chart is negative, with the stock falling below its five-week modified moving average of $94.03.

However, WMT is still above its 200-week simple moving average or "reversion to the mean," now at $77.90. This was last tested during the week of July 14, 2017, when the average was $73.34.

The 12x3x3 weekly slow stochastic reading ended last week at 23.84, down from 33.73 on Dec. 14. Note that just before the high, the stochastic reading was above 90.00 as an "inflating parabolic bubble." This indicated that investors should have reduced holdings.

The horizontal lines are the Fibonacci Retracement levels of the 95% rally from the stock's November 2015 low of $56.39 to the high of $109.98 set on Jan. 29.

Given these charts, my trading strategy is to buy weakness to the 50% retracement at $83.14, as well as to my semiannual value level of $81.81. I'll reduce holdings on strength to the 38.2% retracement of $89.46 and the 200-day simple moving average at $90.81.

Now let's look at Target's daily chart:

Courtesy of MetaStock Xenith

Target broke below two horizontal lines on Nov. 14 and Nov. 15, which are my semiannual and annual pivots at $84.71 and $81.64, respectively. That represented a major warning.

The stock then closed below its 200-day simple moving average of at $78.29 on Nov. 19, then set another warning pre-earnings on Nov. 20. The price gap lower stabilized around my quarterly pivot at $70.42 -- but that failed to hold on Dec. 4, leading to the low of $60.77 set on Dec. 20. Note as well the death-cross conformation on Dec. 19.

Here's TGT's weekly chart:

Courtesy of MetaStock Xenith

This chart is negative but oversold, with the stock below its five-week modified moving average of $71.87. Target is also below its 200-week simple moving average of $71.46, which is also a reversion to the mean.

The 12x3x3 weekly slow stochastic reading fell to 14.42 last week, down from 19.33 on Dec. 14 and falling further below the oversold threshold of 20.00. Note that at the high the stochastic reading was above 90.00 as an "inflating parabolic bubble." This indicated that investors should have reduced holdings.

The stock is also below all horizontal lines that are the Fibonacci retracement levels of the 86% rally from the June 2017 low of $48.56 to the Sept. 10 high of $90.39.

Given these charts, Target investors should reduce holdings on strength to the 61.8% retracement at $64.54, and then to the 50% retracement at $69.48.

(This article has been updated.)

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.