NEW YORK (The Street) - Retail giant Target (TGT) was on a strong momentum run-up that ended abruptly on April 13. The stock failed to hold its 50-day simple moving average last Wednesday then had a downside price gap on Thursday and ended the week with a technically negative weekly chart.
This technical setup chart suggests that investors should reduce holdings on strength following the release of the company's quarterly results scheduled before the opening bell on Wednesday.
Analysts expect Target to earn $1.03 a share and the retailer reported better than expected reports the past two quarters. Earlier in the year Target told food products providers that they were shifting to fresh and more healthy foods in their supermarket isles.
Target is a component of the Standard & Poor's 500 Index which is up 3.4% year to date setting an all-time intraday high of 2131.78 on Monday. Target is lagging slightly, up 3.2%, but the stock is 6.7% below its all-time intraday high of $83.98 set on April 13.
Let's look at the daily and weekly charts for Target and provide the key technical levels at which to buy on weakness and the key technical levels at which to sell on strength.
Investors not familiar with technical analysis should begin with the notion that a price chart for a stock shows a road map of past price performance, which provides guidance for predicting future share price direction.
Here's how to read a daily chart. There are two moving averages to follow; the 50-day simple moving average is in blue while the 200-day simple moving average is in green.
Here's how to read a weekly chart. This chart shows weekly price bars going back to the beginning of 2007 and thus includes the Crash of 2008, then the current bull market for stocks that began in March 2009. The red line tracks the ups and downs of the key weekly moving average. The green line is the 200-week simple moving average. The red line that oscillates along the bottom of the chart is the momentum reading on a scale of 00.00 to 100.00. A reading below 20.00 is oversold, and a reading above 80.00 is overbought.
A technically positive weekly chart occurs when a stock ends a week above its key weekly moving average with the momentum reading rising above 20.00.
A technically negative weekly chart occurs when a stock ends a week below its key weekly moving average with the momentum reading declining below 80.00.
Here's the daily chart for Target.
Courtesy of MetaStock Xenith
Target had a close of $78.36 on Monday and has been below its 50-day simple moving average of $80.83 since May 13.
The stock has been above its 200-day simple moving average since Oct. 20 when this average was $59.65.
Today, shares of Target are above their 200-day simple moving average of $71.31. The stock as a downside price gap from the May 13 low of $79.73 to the May 14 high of $77.36. This gap will likely be filled on a positive reaction to earnings.
Here's the weekly chart for Target.
Courtesy of MetaStock Xenith
The weekly chart for Target stays negative if the stock closes this Friday below its key weekly moving average of $79.72 as its projected momentum reading of 61.59 is down from 69.09 last week.
Note that the long-term momentum uptrend for the stock began during the week of Oct. 17 when the stock held its 200-week simple moving average, then at $59.01. The 200-week has since risen to $62.75.
Investors looking to buy Target should place a good till canceled limit order to purchase the stock if it drops to $68.73, which is a key level on technical charts until the end of June.
Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $81.22 which is a key level on technical charts until the end of June.