How to Trade Costco, Target, Wal-Mart on Recent Volatility

NEW YORK (The Street) - Big box retailers Costco (COST), Target (TGT) and Wal-Mart (WMT) set all-time highs earlier in 2015, and have had mixed performances year to date. That volatility provides trading opportunities.

The retailers began 2015 with strong technical momentum following solid 2014 holiday sales and mostly positive earnings reports.

Wal-Mart peaked first on Jan. 13, Costco followed on March 24, then Target peaked on April 7. Costco and Target have held onto year-to-date gains, while Wal-Mart began a full-fledged technical correction.

When stocks enter a period of share-price volatility, it's important for investors to establish investment strategies based upon chart patterns and key technical levels at which to buy on weakness and 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 2009 when the current bull market for stocks began. 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.

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