Shares of Target Corporation (NYSE:TGT) fell more than 4% on Wednesday despite a broader-market risk-on day and on the back of its latest earnings report.
The severe multimonth selling in retail stocks, however, increasingly looks overdone in some names, including in shares of Target. As a result of Wednesday’s selloff TGT stock reached a technical confluence support zone where the stock now looks to have a better chance to find bottom and lift higher into year-end.
The severe drop of retailer stocks like Macy’s, Inc. (NYSE:M) and Wal-Mart Stores, Inc. (NYSE:WMT) has been well-documented and spread over to most of the industry. While the bears are pointing to all the negative data, a counter-argument at least for the near-term could be made that with holiday shopping about to kick into high gear, maybe a good amount of the “bad news” has been priced in. If that is the case, then retail stocks might see a sizable bounce in coming weeks — one that you could sink your teeth into.
Over the coming couple of weeks we will get lots of early holiday shopping season data … and if this data turns out to be even less than bad, these stocks — including Target — may well bounce.
Target’s results for the third quarter came in above analyst expectations, and TGT raised the lower end of its fiscal 2015 earnings outlook. However, given the recent no-questions-asked selling reaction to any retailer news, coupled with the constant fear of brick-and-mortar sales dwindling in favor of online retail shopping, investors chose to sell TGT stock down some more on Wednesday.
TGT Stock charts
Looking at the multiyear weekly chart of Target stock, we see that in late November 2014 (so just about 12 months ago), Target shares broke past a long-term horizontal line (black) of resistance that propelled it higher into mid-2015. By the summer of this year, however, the stock began to top out right at the upper end of the multiyear trading channel, highlighted by the red dotted parallels.
With Wednesday’s selling, TGT stock has now retested and marginally undercut the previous line of resistance, which may now look to act as support, at least for the near- to medium-term.
On the daily chart, we see that TGT stock’s 4.3% drop on Wednesday filled its up-gap (blue box) from exactly one year ago on Nov. 19. As the saying goes, most but not all gaps tend to get filled, and that once again held true here. This gap also coincides with a 61.8% Fibonacci retracement of the entire rally from summer 2014 into the summer 2015 highs.
While TGT stock is not yet flashing an absolute buy signal, it did close well off its intraday lows on Wednesday, and the next buying day would confirm a near- to medium-term bottom that active investors and traders could use to buy Target for a move back into the mid- to possibly the high $70s.
Any break below Wednesday’s lows, particularly on a daily closing basis, would negate the setup until the next bullish reversal occurs.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
