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We have owned shares of Target (NYSE:TGT) since our October put write expired in-the-money. In that time we have successfully sold two covered calls against the stock, and this morning, we’re recommending another covered call position.
TGT’s old resistance at $67.50 has turned into new support, but we still don’t think the stock is ready to break out.
Discretionary vs. Staples
We like to compare the consumer discretionary sector is outperforming the consumer staples sector to to gauge whether the economy is in an expansion phase or a contraction phase.
Right now, the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY) is outperforming the Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP). That tells us consumers have extra money to spend and enough confidence in their economic future to spend it.
One of XLY’s many holdings is TGT, and if the sector continues to outperform, the stock may rise later in 2019. That’s one reason we were okay being put the stock in October.
Short-Term Resistance
We are generally bullish on TGT, but it has been unable to rise above $72.50 since the stock collapsed after its latest earnings announcement in late November 2018. It tried in early December but was sent to its 52-week lows shortly after that attempt.
Daily Chart of Target (TGT) — Chart Source: TradingView
TGT has been able to recover from these lows, but we don’t expect the stock to have an opportunity to experience any significant breaks above $72.50 until the company’s next earnings announcement on Mar. 5. If we sell a covered call using what we know about TGT’s strong resistance, we can collect premium while we wait for the stock to recover in 2019.
To find out which TGT calls we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.
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