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.

Here's the daily chart for Costco.


Courtesy of MetaStock Xenith

Costco shares closed at $141.40 on Tuesday and have gained 3.1% year to date with the stock 8.3% below its all-time intraday high of $154.23 set on March 24. The stock fell below its 50-day simple moving average on April 15 with the average now at $146.89. This break indicates risk to the 200-day simple moving average which is rising at $136.93.

Here's the weekly chart for Costco.


Courtesy of MetaStock Xenith

The weekly chart for Costco is negative with the stock below its key weekly moving average of $144.55 with a projected momentum reading of 24.50, down from 31.90 on May 29. The 200-week simple moving average is the long-term "reversion to the mean" at $106.90.

Investors looking to buy Costco should place a good till canceled limit order to purchase the stock if it drops to $129.12, which is a key level on technical charts until the end of the year.

Investors looking to book profits should place a good till canceled limit order to sell the stock if it rises to $145.02, which is a key level on technical charts until the end of June.

Here's the daily chart for Target.


Courtesy of MetaStock Xenith

Target closed at $80.00 on Tuesday, and has gained 5.4% year to date and is down 8.3% after setting its all-time intraday high of $83.68 on April 7. Target is up 11% from its Feb. 2 low of $71.90. The stock has been below its 50-day simple moving average since May 13 with that average now at $80.75. The stock is well above its 200-day simple moving average rising at $72.34.

Here's the weekly chart for Target.


Courtesy of MetaStock Xenith

The weekly chart for Target stays negative if the stock ends the week on Friday below its key weekly moving average of $79.83. The stock's projected momentum reading of 51.80 is below the May 29 reading of 55.63. The 200-week simple moving average is the long-term "reversion to the mean" at $63.05.

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 book profits 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.

Here's the daily chart for Wal-Mart.


Courtesy of MetaStock Xenith

Wal-Mart closed at $74.53 on Tuesday and has lost 13% year to date. Shares are down 18% from the stock's all-time intraday high of $90.97 set on Jan.13. The stock has been below its 50-day and 200-day simple moving averages since April 15 with those averages in a "death cross" at $78.85 and $80.89, respectively.

Here's the weekly chart for Wal-Mart.


Courtesy of MetaStock Xenith

The weekly chart for Wal-Mart is negative but oversold with the stock below its key weekly moving average of $77.49 with a projected momentum reading of 9.74 well below the oversold threshold of 20.00. The 200-week simple moving average is the longer-term "reversion to the mean" at $72.43.

Investors looking to buy Wal-Mart should place a good till canceled limit order to purchase the stock if it drops to $72.43, which is the 200-week simple moving average.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $81.95, which is a key level on technical charts until the end of June.

Must Read: Build a Billionaire Portfolio With These 20 Stocks

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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